Why UK energy firms are upping prices while government fight to keep them down

10th August 2018 | Commercial Energy

An increase in wholesale energy prices pushed Britain’s Centrica to announce its second price rise of the year this week even as regulators prepare to cap prices to help millions of households struggling with rising costs. All of Britain’s energy suppliers have increased prices since Prime Minister Theresa May lashed out at what she called “rip-off energy prices” last October and pledged to cap prices in the biggest market intervention since privatisation almost 30 years ago.

Wholesale gas prices spiked to their highest level in at least 10 years as the country was hit by a cold weather snap dubbed the beast from the east in February, while the heatwave felt across the country this summer has also led to higher than usual demand for electricity.

Academics said British demand for electricity rises 350 megawatts (MW) for every degree the temperature rises above 20 degrees Celsius, a frequent occurrence in recent weeks, while lower wind speeds curb power output from the country’s wind farms.

Regulator Ofgem will cap prices on the most widely used standard tariffs (SVTs) by the end of the year, but experts warn prices could continue to rise ahead of the cap if wholesale prices, which make up almost 40 percent of a bill, continue to remain high. “We cannot of course rule out further SVT price rises, given the trajectory of commodity price changes,” analysts at Bernstein said in a research note.

Reuters data shows average day-ahead wholesale gas prices in the first half of 2018 almost 30 percent higher than over the same period last year, while the average day-ahead electricity price was around 20 percent higher. “This is mostly due to the global rise in oil prices feeding through to wholesale gas prices which impacts both domestic heating and electricity generation,” Ofgem said this week as it announced it would allow suppliers to raise prices for the most vulnerable customers.

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