This publish is a observe as much as What drives wholesale power prices? which incorporates an introduction to how the UK power market is structured and the kind of components that have an effect on wholesale costs.
Wholesale power usually makes up a bit over 40% of the common family’s power invoice, so it’s good to know what impacts wholesale costs, and the way modifications in these costs find yourself affecting your payments.
What occurred within the power market in 2016?
In a nutshell: In early 2016, wholesale electrical energy costs fell to the bottom they’d been since 2007. This enabled us, and others, to supply some astonishingly low costs early within the yr. Nonetheless by late October, they’d risen by about 40%, and though there’s been some volatility, they’ve stayed very excessive since then.
Let’s take a more in-depth look.
2016 began off by persevering with the development of previous three years of steadily falling prices, with wholesale costs dropping to the bottom ranges since 2007. As a lean, technology-led power provider on this market, this allowed us to move on the financial savings to our present clients by a sequence of value drops.
Nonetheless, costs began rising in April, pushed initially by unseasonably chilly climate and rising considerations over record-low provide margins for the 2016-17 winter.
With the autumn within the pound following the Brexit referendum, the price of importing power to the UK (one thing which the UK does lots of) rose, and as summer season become Autumn, import complications elevated additional as longer than anticipated outages for plenty of French nuclear reactors decreased the general quantity of power obtainable for importing.
In early November, because the climate grew colder, upkeep points on the UK’s solely long-term Gasoline storage facility, “Tough” within the North Sea, drove costs up farther nonetheless.
In January, costs have dropped off considerably from their December peak as temperatures proved comparatively gentle. It stays to be seen the place costs will go from right here.
How will these modifications to wholesale costs have an effect on my invoice?
That is really a less-than-straightforward query to reply. And to take action, we’re going to wish to take a fast dive within the power pricing ways that at present abound within the UK power market.
Most UK households are on Normal Variable Tariffs. These are tariffs with no finish date, the place costs change (traditionally, round yearly) based mostly on broad developments in wholesale power costs, and different components similar to value of distribution or authorities fees.
Then there are mounted tariffs. These are tariffs the place the unit costs and standing fees are assured to not change for a set period of time, usually a yr, though 13 months and 18 months are additionally well-liked. As soon as a set tariff ends, that buyer is positioned onto a normal variable tariff, till they selected to do one thing else.
Is sensible! How does it work in follow?
Sadly, most suppliers within the UK value their tariffs on a “tease and squeeze” mannequin – the place mounted time period offers are used to lure in clients, earlier than they’re moved onto an overpriced variable tariff as soon as the mounted time period ends.
Oddly, on this state of affairs, it’s the mounted time period offers that the majority carefully observe the developments of the wholesale costs, fairly than variable tariffs. This has been borne out during the last 12 months with mounted time period costs rising by round 10%. The rise is lower than that seen within the rise in wholesale prices as some suppliers are prepared to supply loss-leading tariffs to quickly develop buyer numbers, or as teaser offers for costlier tariffs.
Tease & Squeeze suppliers would fairly not inform their variable clients something in any respect – as it’d wake them as much as simply how a lot they’re overpaying, and that it’s time to modify.
Regardless of this, the previous few months have seen a number of suppliers with tease and squeeze pricing elevating the costs on their commonplace variable tariffs together with Co-op, Ovo, and EDF Power.
British Gasoline, SSE and E.On have introduced they received’t elevate their costs till March on the earliest, nonetheless it’s value noting these are nonetheless amongst the most costly tariffs available on the market.
Octopus are certainly one of a handful of corporations who don’t consider it’s honest to cost loyal clients a lot extra on commonplace variable tariffs than new clients on mounted ones. As a substitute, we set the costs of each mounted and variable tariffs based mostly on what we pay on the wholesale market.
So, again to the unique query of how these modifications will have an effect on your invoice:
When you’re on a variable tariff, your prices will change with the altering wholesale prices, nonetheless you’ll be able to relaxation assured we’ll all the time value it pretty, with out the “loyalty tax” of the Tease and Squeeze mannequin. We’ll all the time offer you 30 days discover upfront of a value rise, and make the method of fixing your costs so simple as doable.
We’ll additionally minimize our costs as quickly because it’s possible to take action. In 2016, we dropped our variable costs for present clients 4 instances.
When you’re on a set tariff, the primary you’ll discover the modifications in power value is if you come to the tip of your mounted time period contract – even the perfect mounted value offers could also be costlier than you’ve been paying.
Nonetheless, the components that drive value, similar to unseasonably chilly climate, can drive up your consumption. These bumps must be comparatively minor, however over time could imply you have to high up your account (or withdraw some credit score if it goes the opposite approach) to make sure your account isn’t getting too far out of stability. We periodically evaluation all our clients’ accounts, and can get in contact in good time if we predict you’ll have to make an adjustment.
If a lot of Octopus’ power is bought immediately from renewable sources, why is it affected by wholesale value modifications?
After we contract with renewable power producers – no matter whether or not the undertaking is funded by the Octopus Group or not – now we have to pay a good market value for all of the power we buy (even when that occurs to be all of the power that producer generates).