2008 Round Up. What’s in store for 2009?

Wholesale Energy Prices Dec 2008

Wholesale Energy Prices Dec 2008


2008 in Summary
 
Wholesale Markets
 
Oil prices rose from just under $100/barrel at the start of 2008, to a peak of $147/barrel in July 2008, before crashing in spectacular style to sit at around the $40 level at year end. In dollar terms oil prices are down 60% on the year and have lost nearly ¾ of their peak value.
 
The sharp swings in dollar oil prices were partly mitigated in Sterling terms due to the depreciation of sterling against the US dollar. Sterling / dollar traded in a fairly narrow range of $1.90-$2.05 between January 2008 and mid-August 2008. However, when it broke through $1.90, it then went on to lose a 20% of its value in the following 100 days.
 
Sterling oil prices opened the year just below £40.00/barrel. They jumped by 55% to hit a peak of £73.60/barrel in mid July before falling to end the year at around £26.00; 45% below their 2008 opening levels.
Oil Prices and Exchange Rates Dec 2008

Oil Prices and Exchange Rates Dec 2008


1 year-forward gas wholesale prices began the year at 1.76p/kWh (kilowatt hour). They jumped by 93% to hit a peak of 3.41p/kWh in early July 2008 coinciding with the peak in oil prices at that time. However, while oil prices began their decline almost as soon as they hit their peak, wholesale gas price falls were temporarily deferred by concerns over supply disruptions over the winter. This meant that wholesale gas prices didn’t start their proper decline until early September 2008; a full 2 months after oil prices began falling.
 
A virtually identical picture was seen with wholesale electricity prices, except that the peak in electricity prices was even later, in late September 2008.
 
As we reach the end 2008, the key observations worth noting are that, while both wholesale gas and electricity prices have fallen by 40% from their 2008 peak, the decline has not been anywhere near as pronounced as for oil and, while oil prices are well below 2008 opening levels, gas and electricity wholesale prices are still higher than they were at the beginning of 2008.
 
Wholesale v Gas Retail Prices Dec 2008

Wholesale v Gas Retail Prices Dec 2008


Retail Markets
 
For energy consumers, 2008 was truly a terrible year.
 
The year had barely begun when npower kicked off the first round of retail price rises with a 19% and 13% increase in gas and electricity bills respectively. Four of the remaining Big 6 energy suppliers followed in quick succession and by 8 February 2008, 80% of the population had been hit with an average increase of £130 on their energy bills. Only Scottish and Southern Energy held their prices until the end of the winter period before putting through an increase.
 
That was the good news. As wholesale prices continued to soar we warned, even before the first SSE price increase came into effect, that….”recent retail increases have NOT kept up with the ongoing increase in wholesale prices meaning that there is now a risk of even more price hikes going forwards.”
 
As the picture grew worse, literally by the day, we pushed our users towards capping or fixing their energy prices.
 
Inevitably higher wholesale prices spilled into another mega-round of price hikes in the summer of 2008 with the Big 6 suppliers all implementing increases within 40 days of each other.
 
In aggregate energy bills rose by £370 in 2008, a 40% hike on the year and depleting household budgets of about £7 billion pounds.
 
Latest Price Changes
Latest Price Changes Dec 2008

Latest Price Changes Dec 2008


Source; www.TheEnergyShop.com
The increase shown is for the average of Monthly Direct Debit and Cash/Cheque bills (excluding any prompt payment discounts) for the relevant suppliers’ Standard tariff based on an average usage profile.
 
Aggregate Increase 2008
Aggregate Energy Price Increases Dec 2008

Aggregate Energy Price Increases Dec 2008


Source; www.TheEnergyShop.com
The increase shown is for the average of Monthly Direct Debit and Cash/Cheque bills (excluding any prompt payment discounts) for the relevant suppliers’ Standard tariff based on an average usage profile.
 
Prospects for 2009
 
The next move in retail prices will inevitably be down. It is more a question of how much and when.
 
In terms of gauging the size of a potential cut it is worth noting that;
 

  • Although wholesale prices have fallen by 40% from their 2008 peaks, this is not the correct starting point from which to analyse a price cut since energy bills never rose far enough to reflect those peaks in the first place, and;
  • Even after recent sharp falls wholesale prices are still higher than they were at the beginning of the year.

 
Having said that, our analysis of forward wholesale prices and energy suppliers’ costs suggests that there is scope for a cut of 15% on standard gas prices (£120) and a 10% cut in electricity prices (£50). This is based on current wholesale prices. If wholesale prices fall further, then the cuts should get bigger.
 
As far as timing is concerned, the January 2008 price hikes suggest that energy suppliers will have a good idea of their input costs, and therefore the scope for price changes, early in January and so it would not be unreasonable to expect announcements sooner rather than later. Our concern is that, if energy suppliers go early, they may take a cautious approach, particularly with wholesale markets still concerned about potential supply disruptions over this winter. As such, the scale of those cuts may disappoint.
 
What to do?
 
Do you wait for a price cut, or do you switch now?
 
The average bill for a dual fuel customer of the Big 6 energy suppliers is currently £1246 a year.
 
The average bill for a customer who has never previously switched is £1292.
 
A cut of £170 would take those bills down to £1076 and £1122 respectively.
 
The cheapest offer in the market is British Gas’ WebSaver 1 tariff. It comes in at £1058, already less than the price that customers on standard tariffs can expect after a price cut. Furthermore it guarantees that the tariff will have a minimum 10% discount against British Gas’ Standard tariff prices until 31 March 2010. So you get the benefit of a saving NOW and the prospect of further falls if British Gas cuts standard prices as we expect. The cost is an exit penalty of £30 per fuel if you leave before 30 September 2009, but the saving achieved in just a few months will cover that.
 

What we think:
 
The next move in energy bills will be down. We expect price cuts of around £170 off gas and electricity bills in the New Year and hope that they will be delivered sooner rather than later.”
 
“Don’t wait for a price cut to fall into your lap. If history tells us anything it’s that you could be waiting some time. Instead, customers on standard tariffs can already save more than the likely price cut by switching to British Gas’ WebSaver 1 tariff. This not only guarantees an immediate saving but also further savings if British Gas cuts its standard prices by more than 5%. That’s the deal to go for.”

 
Standard Energy Bills

Standard Energy Bills Dec 2008

Standard Energy Bills Dec 2008


Source; www.TheEnergyShop.com
The bill shown is for the relevant suppliers’ Standard tariff (excluding any prompt payment discounts) based on an average usage profile.
 
Best Deals (30 December 2008) Monthly Direct Debit
Best Energy Deals Monthly Direct Debit Dec 2008

Best Energy Deals Monthly Direct Debit Dec 2008


Source; www.TheEnergyShop.com
 
Best Capped/Fixed Energy Deals (30 December 2008) Monthly Direct Debit
Best Fixed Capped Price Energy Deal Dec 2008

Best Fixed Capped Price Energy Deal Dec 2008


Source; www.TheEnergyShop.com
Please note that all Capped/Fixed deals now have exit penalties for early termination. Please see our website for further details.

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