Energy bills are set to rise again

Energy bills are set to rise again
 
British Gas has sent out a clear warning that energy prices are likely to rise again later this year. In a statement to the City it said that “the forward wholesale prices of gas and power for delivery in winter 2011/12 are currently around 25% higher than prices last winter, with end-user prices yet to reflect this higher wholesale market price environment.”
 
What this means is simply that, unless wholesale energy prices start to fall back again and quickly, then we are going to be for another round of energy price hikes.
 
What sits behind this warning is the significant and sustained rise in wholesale energy markets, particularly for gas, that we’ve seen over the past year.
 
The wholesale markets are where energy suppliers buy the gas and electricity that they then resell onto us. If wholesale prices rise then energy companies end up paying higher prices which they ultimately pass onto me and you.
 
Wholesale gas prices have risen particularly strongly driven by the higher price of oil and by concerns over supply disruptions as a result of violence in Libya and the earthquake and tsunami in Japan. The later has led to a diversion of LNG (liquefied natural gas) cargoes to Japan in response to a shutdown of nuclear generation capacity. Wholelsale gas prices have risen by 78% since their bombed out levels of early 2010.
 
On a positive note, it is worth highlighting that we are not going to see a rerun of 2008 where some energy suppliers hiked gas prices by 50%. That is because wholesale energy prices are still nowhere near their peak levels of 2008 yet retail energy prices are 20% higher than were in April 2008 (the last time wholesale prices were at similar levels to today.
 
Wholesale markets are very volatile which means that prices can move up or down very quickly. In fact oil prices have fallen by 10% just in the last week. Further prices hikes are not yet a certainty as wholesale prices could yet fall from current levels.
 
That is the good news. The bad news is that if wholesale prices don’t fall from here, then we will see further energy bill hikes and those hikes will likely take prices to new record levels.
 
In this environment the best thing to do is to fix the rates that you pay for your energy so protecting you from the potential increase for a period of a year or so. There are still several fixed rate energy deals available which are cheaper than standard bills, and which will look like great value when energy bills start rising again.
 
The important thing is that you don’t delay. Once energy bills start pushing up again these rates will have long disappeared and it will be too late.

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