British Gas is the first supplier to formally warn that higher energy bills are on the way.
Centrica, the owner of the British Gas energy retail brand in the UK is the first energy supplier to send out a clear signal that energy bills are likely to rise later in 2011.
In its Interim Management Statement released today (9 May 2010) the company made the following statements in relation to expected energy bill changes.
“In the UK, 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.”
“The 2011 result will be materially influenced by the recovery of higher wholesale prices and other costs in the retail price structure.”
“The full year outturn remains subject to the usual variables, particularly retail margin recovery and weather.”
There are 2 ways in which margins can be recovered. Either input costs (wholesale energy prices) fall or retail energy bills rise. The statement from British Gas makes it quite clear that if wholesale prices do not fall, then energy bills are going up again.
In our energy update of 5 May 2011, we looked at what had been happening in wholesale markets and the impact that this would have on retail energy bills. We noted the following (figures have been updated for the 10% fall in oil prices in the past week).
- Oil prices in sterling terms went above their 2008 peak in sterling terms for the month of April (they have since dropped).
- Wholesale gas prices are up 12% in 2011 and 78% above their bombed out levels of early 2010.
Despite this we do not see this as being a re-run of 2008 because:
- Wholesale energy prices are still nowhere near their peak levels of 2008 but
- Retail energy prices are 20% (£177) higher than were in April 2008 (the last time wholesale prices were at current levels heading up).
We concluded that, although retail price increases are not yet a foregone conclusion (because of the volatility of wholesale markets), they are however very likely and that those increases would take energy bills to new record levels.
The Centrica statement today reinforces our view that higher energy bills are on their way and probably quite soon.
What we think:
A rapid rise in wholesale gas prices driven by events in the Middle East and Japan means that it is now very likely that we will see further increases in energy prices that will take energy bills to record levels. British Gas’ statement today confirms that view. Consumers need to act right now to protect themselves from rising prices. You can still sign up for a fixed rate tariff that is not only cheaper than standard tariffs today, but will look like great value when energy bills start rising again.
Standard Energy Bills Analysis
The prices shown are for the average of Monthly Direct Debit for the relevant suppliers’ Standard tariff based on an average usage profile (16500 kWh gas and 3300 kWh electricity on a standard meter).