Soaring British winter gas prices point to energy price cap increase

21st September 2018 | Commercial Energy

The upward trajectory of already unseasonably high British wholesale gas prices is showing no sign of slowing, putting pressure on the energy regulator Ofgem to raise its price cap next year. A cap on default electricity and gas bills – a flagship policy of British Prime Minister Theresa May to end what she called “rip-off” prices – will be in place by the end of this year and can be adjusted according to changing costs such as wholesale energy prices.

Ofgem has said it wants to cap default energy bills at £1,126 a year ($1,484), a level below the most-used tariffs set by the country’s bis six suppliers, which include Centrica, whose British Gas is the largest household energy supplier in the country, SSE and EDF.

The regulator will review the camp to take into account any changes in wholesale prices and associated costs such as network fees or policy costs such as environmental levies. The first review will take place in February, with any changes to take effect in April, and soaring wholesale prices, particularly gas, indicate that Ofgem will need to hike the ceiling.

Energy price cap increase

The February review will take into account wholesale prices from August to January while the first cap level was based on prices from February to July. “We don’t know what the wholesale price will be for the rest of the year but even if they stay where they are that is still around 25 percent higher than for Ofgem’s previous review period,” Berstein senior analyst Deep Vekateswaren said.

“This would imply an increase of more than 100 pounds”. Other analysts agree an increase is likely. When the indicative cap level was announce on September 6, Jeffries forecast that April’s increase would be around 77 pounds.

A perfect storm of factors means that gas, which supplies around 80 percent of the country’s heating and around 35 percent of its electricity, is likely to stay high for the rest of the year.

More information available on the website below