UK wholesale energy price rise puts pressure on household bills

17 April, 2018

UK wholesale energy prices hit four-year highs on the forward products most regularly traded by energy companies during the winter, the ICIS Power Index reveals, as number of supply problems combined with the ‘Beast from the East’, increasing fundamental risk in the traded markets

London, UK, 17th April 2018 – Energy was being traded on the forward market in the UK at the highest prices seen for four years in the first quarter of 2018, the ICIS Power Index (IPI) reveals.

The price of gas to be delivered over the next calendar year also rose to a multi-year high, reaching its highest level since early 2015.

With wholesale energy costs making up 40% of a dual fuel household bill, the price increases pile pressure on UK suppliers to raise end-user bills – if they have not done so already. The release of the figures comes just days after some high-profile suppliers increased household bills.

And the pressure will be on smaller suppliers. This is because a number of small companies won over swathes of new customers by offering low tariffs underpinned by what were historically low wholesale prices from 2014 to 2016. But the recent move into a higher wholesale price range means some companies may have to revisit their approach as low tariffs may no longer be sustainable.

The UK saw repeated supply and demand shocks over the winter which tested the resilience of the country’s energy infrastructure and boosted prices of electricity and gas on the wholesale market.

The IPI ended Q1 2018 at just over £50 per megawatt-hour (MWh). This was the first time since late 2014 the £50/MWh ceiling had been breached. The index result compared with a low of £33/MWh back in early 2016 and £44.50/MWh going into the winter, a 12% increase in six months.

“The 12% increase in forward prices over the winter was substantial,” said ICIS power markets editor Jamie Stewart. “Markets were tested by supply failures and demand shocks – not least the Beast from the East – which squeezed networks meaning a large risk premium was priced into forward products on energy markets. This led directly to the household bill increases that we have seen in recent days.”

The IPI gives independent insight into wholesale power prices for both households and industrial electricity consumers, based on real market trading. The IPI is updated every working day and is freely available from the ICIS website, along with ICIS’ quarterly analysis of price trends and volume.

Media Contact

Jamie Stewart
Power Markets Editor, ICIS

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