Wholesale energy prices and British Gas’ latest price cut.

Wholesale Energy Prices Table May 2009

Wholesale Energy Prices Table May 2009


Firstly a quick update on wholesale energy markets.
 
Although both oil prices and UK wholesale energy markets have both collapsed since the 2008 highs, there has been a growing divergence between the performance of oil prices and wholesale gas and electricity prices over the past few months. Whereas the oil price has jumped by 40% since the beginning of 2009 (35% when priced in sterling), the wholesale gas price is 18% lower than the start of 2009 and even 10% below its opening price for 2008. Similarly, wholesale electricity prices are 20% below their 2008 and 2009 opening levels.
 
From these levels there may be a strong argument for saying that wholesale gas and electricity prices have quite a bit of catching up to do with oil prices but, until they do bounce back, the spread between wholesale and retail gas prices remains at an all time high and is a strong indicator that retail energy bills still have a long way to fall.
 
Against this wholesale market background, the fairly small retail price cuts that we saw in the first quarter of 2009 were looking increasingly questionable. Therefore it was not so much a question of whether we would see further cuts in energy bills, it was more a question of when.
 
Our expectation was that the next round of cuts would start in the autumn, when the energy suppliers typically re-hedge the bulk of their forward energy purchasing. Therefore t was a positive surprise that British Gas went early. Will others follow? Possibly, but not necessarily.
 
The British Gas move does now make British Gas the cheapest supplier in the market for customers on Standard tariffs but it is worth noting that after this move, the difference between the cheapest and most expensive supplier is still only £30 (2.6%) for monthly direct debit customers. Furthermore, British Gas will still not be the cheapest for cash/cheque customers. So while this move does up the ante a little, in itself it will not necessarily mean we are going to be for another round of price cuts at this point. For that, we may need to rely on the goodwill of the energy suppliers themselves.
 
Wholesale Gas Prices v Retail May 2009

Wholesale Gas Prices v Retail May 2009

What we think:
 
British Gas’ latest price cut is a welcome move and will cut an extra £44 a year of the bills of 4.5 million customers. This will now put British Gas at the top of the best buy table for customers on standard energy tariffs, although not by a significant amount.
 
Any price cuts are good news but we would warn any customers still stuck on standard tariffs to get off them quickly. They are seldom competitive and you can save significantly more by switching to a discounted online tariff. That is where the real competition for customers is taking place.

 

  • 4.5million British Gas electricity customers will see their annual bills fall by £44 a year. A total saving of £198m.
  • Taken together with British Gas’ gas price cut of 9% on 19 February 2009, dual fuel customers will save £121 a year; about 30% of the increase they saw in 2008.
  • British Gas has today also launched WebSaver 3, undercutting its previous WebSaver 2 tariff and further improving its lead in the best buy energy tables.
  • Please note that there is a £60 exit penalty if you leave before the end of the contract period.
  • Available online through www.TheEnergyShop.com

Latest Price Changes
Please note that this table uses bill calculations based on analysis from TheEnergyShop.com. These numbers may vary from the headline rates provided by the energy suppliers.

Energy Price Changes May 2009

Energy Price Changes May 2009


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 Increase 2008

Aggregate Energy Price Increase 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.
 
Standard Energy Bills (7 May 2009)
Standard Energy Bills May 2009

Standard Energy Bills May 2009


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. ScottishPower Cash/Cheque customers can receive a £150 annual discount for paying their bills promptly.
 
Best Deals (7 May 2009) Monthly Direct Debit
Best Energy Deals May 2009

Best Energy Deals May 2009


Source; www.TheEnergyShop.com
 
Best Capped/Fixed Energy Deals (7 May 2009) Monthly Direct Debit
Best Fixed Price Energy Deals May 2009

Best Fixed Price Energy Deals May 2009


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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