April 2015 Ofgem Supply Market Indicators (SMI)
In our regular monthly review of Ofgem’s Supply Market Indicators we focus on April 2015’s release from the energy regulator.
Wholesale Prices
- Ofgem predicted that wholesale prices will make up 37% of the average electricity bill and 46% of the average gas bill
These levels compare favourably with Ofgem’s prediction of 38% and 51% respectively in April 2014’s SMI, but why has the cost of the energy fallen to such low levels?
Ofgem explain:
Network Costs
- For gas customers, network costs are now forecast to make up 21% of the overall bill and for electricity customers 24%
Environmental & Social Obligation Costs
- Ofgem also reported that environmental and social obligation costs (green levies and taxes) are now forecast to make up 3% of the average gas bill and an astonishing 12% of the average electricity bill.
Supplier Operating Costs
- Ofgem forecast that supplier operating costs for gas customers will be 14%, whilst for electricity customers they are forecast to be 13%.
Supplier Pre Tax Margins
- Ofgem’s interpretation of supplier ‘Pre Tax Profit Margin’ is 12% for gas and 9% for electricity.
Ofgem’s SMI 2009-2015
Ofgem’s SMI has been reporting since 2009.
Costs not under the control of the supplier
- Have increased from 26% to 49% for electricity contracts but fallen from 30% to 29% for gas contracts
- In addition Ofgem’s SMI has revealed that over the period 2009 to 2015 wholesale costs had reduced as a proportion of total costs from 60% to 46% whilst electricity has seen a fall from 57% to just 37% today
Supplier costs & Profit
- Ofgem’s forecasts of supplier operating costs have revealed that those for electricity contracts have remained stable at 13% over the period whilst those for gas customers have increased from 10% to 14%,
- Meanwhile Ofgem’s estimation of profit on gas contracts has jumped from a loss in 2009 to 12% today whereas for electricity contracts the profit level is reported to have increased from 2% to 9% today.
Overall contract costs
- Ofgem’s base data suggests that the overall cost of the average gas contract has decreased by 1% over the period but has increased by 1% for electricity contracts
Where the money goes
Ofgem’s SMI tell us that:
The Government
Takes 8% of the total cost of a gas contract in levies and taxes but an astonishing 17% of an electricity contract as the cost of subsidising renewable energy hangs heavily on consumers.
The Generators
Take 46% of the total cost of gas contracts in wholesale expenses but just 37% for electricity contracts.
The Networks
Take 21% of the average gas contract in order to transport the commodity to its destination and 24% of the overall cost of electricity.
The Suppliers
Take 26% of the cost of a gas contract to cover their operational, metering and service expenses as well as their profit margin compared to 22% for electricity contracts.