Why are our prices changing
Over the last year I have written a few articles explaining what’s been happening in the UK energy market. In recent weeks we’ve experienced an unprecedented number of factors combining to create a perfect storm which has increased wholesale prices to the highest we’ve ever had to pay.
In this article we go further to explain the factors that have led to this and why in turn this has affected your bills.
Depleting energy stocks, the pandemic and Brexit
Uncertainty caused by the pandemic and Brexit pushed up prices, while colder weather increased worldwide demand resulting in less gas landing in the UK, depleting our gas reserves, all leading to the highest wholesale energy price for 13 years.
In the last year alone, we have seen the price of wholesale gas increase by over 515%. With most of the UK’s electricity being generated by gas fired power stations, this has forced up the price of electricity by over 225%.
Since the beginning of the year wholesale prices have increased by almost 100%. We recognise that it’s been a tough year and we’ve done all we can to absorb this impact for as long as possible, but costs have continued to rise and we reluctantly need to increase our energy prices. From 2nd August 2021, we will be increasing prices by 12.1% for a typical Igloo dual fuel home.
Factors affecting current wholesale pricing:
Depleted energy stocks
A long frosty winter has resulted in higher than expected demand, putting pressure on UK energy stocks.
During winter the cost of Liquid Natural Gas (LNG) from the US, Russia and Qatar skyrocketed as Europe and Asia competed to buy up what was available. This resulted in less gas landing in the UK, increasing our reliance on what we already had in storage.
In previous years, warmer weather would normally result in lower wholesale prices as we switch off our heating and start to enjoy the British summer. Unfortunately, with empty gas storage tanks across the globe, everyone is having to stock up to get ready for next winter. It’s a bit like going for a long drive, you know the price of petrol at the motorway service station is really expensive but if you don’t top up, you will eventually run into problems.
The pressure to replenish our gas stocks means we must buy at a higher rate, pushing up prices across the board.
Back at the start of 2020 when COVID hit and the country went into lockdown, few areas of society were left untouched, resulting in a huge drop in demand for energy from businesses and manufacturing. This reduction in demand resulted in a drop in the cost of energy as there was more available than could be used.
In April last year, we were one of the few suppliers to pass this saving on to our customers.
Since then, people have returned to work, demand has increased and everyone is working overtime to catch up. We have now seen a return to pre-pandemic demand, which has put a strain on our already depleted energy reserves, pushing up wholesale costs.
To make matters worse, the pandemic has also impacted gas production as maintenance and large infrastructure projects across the globe have been delayed. This has reduced the capacity of reliable producers in places like Norway, forcing the UK to go further afield for our gas.
The cost of carbon
The UK is currently part of the EU carbon emissions trading scheme, in a bid to control the amount of carbon dioxide that our country releases into the atmosphere. This scheme charges businesses who produce electricity and gas for the amount of CO2 they release into the atmosphere.
As a result of tougher EU targets announced earlier this year, these charges have gone up by over 75%, thereby increasing the cost of producing energy.
The UK has plans to start its own post-Brexit emissions trading scheme this year but until this has been defined, the extra uncertainty will continue to impact prices.
The cost of getting Electricity and Gas to your home
When the energy industry was privatised back in 1986, the government broke it down into lots of different parts. From distributors who look after the pipes and cables that bring energy to your home, to operators who supply and maintain your electricity and gas meters.
Each of these business charge for these services and these costs are passed on to the consumer through the Standing Charge which is itemised on your energy bill separately.
The cost of running these businesses has also increased, resulting in Ofgem increasing their price cap to allow energy providers to increase these charges for customers.
We took the decision not to increase our standing charges until now, and only by an amount we think is as fair to balance the increased costs to supply with striving to offer the best deal for our customers.
We’re here to help
As a company we’ll continue to closely monitor the wholesale market to make sure our customers are always on the best deal that we can offer.
We recognise that this price rise may cause additional stresses and challenges for our customers and we’re here to offer support. You can find out more in our frequently asked questions.