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Ofgem expects UK dual fuel bills to remain steady
Ofgem’s latest Supply Market Indicators (SMI) report (published 28 August) estimates the annual UK consumer’s dual fuel bill will hold steady at £1,330, although wholesale costs are falling. Average gas and electricity bills are forecast to be £742 and £609 respectively, based on average annual consumption declining about 2% this year and next, unless there is a particularly severe winter (when consumption would rise) or even milder conditions.
However, wholesale gas and electricity have fallen since the beginning of the year. Compared with the same time last year, gas and electricity prices for the coming winter are around 15% and 7% lower respectively, driven by mild temperatures across the UK and Europe. As a result, gas storage is at record levels.
Ofgem points out that in the short-term these price trends may have only a limited impact on consumer energy bills, because suppliers tend to hedge their energy purchases up to two years ahead. Nevertheless, Ofgem recognises that a sustained downward trend could inevitably reduce a supplier’s wholesale costs.
The energy watchdog estimates the wholesale price of gas and electricity costs for the next 12 months will be around £598, or 45% of an average dual fuel bill, based on an 18-month hedging assumption. Considering other hedging strategies, Ofgem forecasts the wholesale cost will range from £580–£610. The equivalent figure a year ago was £634.
Suppliers’ operating costs, including billing, metering and bad debt have remained broadly flat over the last 10 years. Based on 2013 statements from major suppliers, Ofgem estimates that supplier operating costs for the next 12 months will be around £174, about 13% of the average fuel bill. National roll-out of smart meters is expected to raise suppliers’ costs, although remote monitoring will eventually reduce costs.
Speaking on behalf of the major energy suppliers, Angela Knight, Chief Executive of Energy UK said: ‘At last Ofgem has confirmed what we always said, that suppliers make an average of about £1 per week per household – and profit even less.’
News Item details
Journal title: Petroleum Review
Keywords: Utilities
Countries: UK -
Subjects: Policy and Governance, Electricity, Gas
