Ofgem Supply Market Indicator Report

Prognosis: Energy Costs are Rising

Last week, Ofgem released its latest Supply Market Indicator report.

In it they reported that in the decade to the end of 2013:

• The average bill for a standard meter had grown by 135% in nominal terms;
• However, actual energy consumption had decreased, 20% for gas and 10% for electricity despite bills increasing;
• Wholesale market costs for electricity grew by 150% and gas by 170% and now make up 46% of an average energy bill;
• Network costs made up 22% of an average energy bill;
• Environmental & social obligation costs made up 7% of an average energy bill;
• Supplier’s operating costs had remained stable at 13%, despite a peak around the depths of the recession as bad debt increased;
• Supplier margins made up 7% of an average energy bill;

However in April 2014, they found that:

• Gas costs were around 20% lower than in April 2013
• Electricity costs 10% lower
• UK’s retail gas price was the 10^th least expensive out of 25 nations whilst the electricity price was the 12^th most expensive

Ofgem noted that whilst network costs had halved in the first fifteen years since privatisation, there were planned rises in the cost of energy transportation as network companies were required to upgrade and renew ageing infrastructure and such a level of investment will be required “until at least the start of the next decade”.

Similarly Ofgem highlighted the requirement for energy suppliers to meet

“a range of government environmental and social obligations to encourage energy efficiency and low-carbon energy and reduce fuel poverty”

As a result therefore, the potential ‘gains’ from a softening of wholesale energy costs in April 2014 are more than offset by the increase in third party charges and government levies being anticipated by Ofgem over the long term.

The outlook remains the same therefore; prices look like they are going to rise, even in a falling wholesale market.

For more information visit: Ofgem’s Supply Market Indicator