This week the courts appointed administrators to run Bulb Energy who joined more than 20 companies exiting the energy market in 2021. Many British energy suppliers have struggled with the soaring wholesale gas and electricity prices while the amount they are able to charge customers is limited by Ofgem’s Energy Price Cap (EPC). Prices on the wholesale market can fluctuate very quickly reflecting global happenings with fuels like gas, oil, coal and renewables, and demand. Suppliers often buy energy for their tariffs 2-3 years in advance. Some smaller energy providers are not able to buy that far in advance and have been caught out by soaring prices and not being able to pass this onto their customers due to the EPC.
Ofgem reviews the EPC twice a year based on the latest estimated costs of supplying energy. From October 1st the EPC rose to reflect the higher wholesale gas prices and on November 19th Ofgem launched their five consultations on proposals to ensure that the price cap reflects the costs, risks and uncertainties facing energy suppliers. Ofgem’s decision is set to be published February 2022 ahead of the next EPC review in April 2022.
Ofgem say “The unprecedented and unexpected rise in gas and electricity prices over recent months has put energy markets under severe strain. We have been working with the government, the energy industry, and consumer bodies to manage the situation, protecting consumers during this challenging time. As this period of uncertainty continues, and the pressure on the sector grows, we are taking steps to protect the interests of consumers, providing greater certainty for investors, and strengthening the resilience of the sector.”
“The additional costs and uncertainties facing suppliers are likely to be beyond what is accounted for in the existing price cap methodology. When we published our decision to implement the default tariff cap (‘the cap’) in 2018, we outlined that we would consider amending the cap methodology, where there were significant and unanticipated changes in factors determining suppliers’ costs associated with supplying energy to domestic default tariff consumers.”
“In light of the recent wholesale price volatility and its impact on the GB energy market, and to ensure that the cap reflects the costs, risks and uncertainties facing the supply companies we regulate, we have published a range of documents consulting industry on proposals to amend the cap.”
AB Block Property Managers work regularly with utility brokers. Andrew Wragg, the Operations Director at Block Management Utilities provided our Property Managers which this useful insight on November 17th , “As per usual, gas wholesale prices have been the dominant factor leading power pricing in the UK, due to our reliance on natural gas for ~40% of electricity generation. And, as supplies become increasingly scarce on the UK Continental Shelf, so our dependence has grown on exports from Russia and Norway.”
“The market has been dominated in the past month by speculation regarding Russian gas arriving in European storage facilities. Much of the reduction seen since the highs of early October were due to Putin suggesting that Russia (Gazprom) would fill European storage as soon their own facilities were topped up. But the latest bounce in prices has come on the back of only modest volume entering Europe.”
“We stand at a crossroads. Russian gas currently stored in Europe is at around half the level of this time last year. In the past couple of days, upward pressure on prices has only been tempered by higher-than-average forecast temperatures in northern Europe, reducing demand forecasts. The direction of pricing across the remainder of November will likely be determined by decisions made in Moscow. Most recently this week, markets have dipped following an increase of Russian supplies, and it is hoped this will be sustained – time will tell.”
“Clearly periods beyond winter-21 are experiencing far less upward pressure, with the winter-22 baseload contract trading at almost half the value of January-22. If your current energy contracts expire beyond this winter, please consider yourself one of the lucky ones, but know that upward pressure is still being felt across the forward curve.”
“For context, at time of writing UK day-ahead baseload prices are 389% higher than at the same point in 2020. If your renewal date is imminent, it is worth noting the year-on-year increase in commodity for a forward 12 months is approximately 280%. Assuming the commodity component comprises approximately half of your delivered price, it’s easy to see the likely impact on energy budgets from point of renewal.”
Some industry experts are advising consumers to sit tight if their fixed tariff expires over the next few months and to let it roll automatically onto the EPC tariff. Certainly Ofgem’s February 2022 consultation decision should give many customers some indication how this is going to pan out.
This article is intended as a guide only and does not constitute legal advice. – 26/11/2021
