I don't understand how energy prices work

fubarknee

During the pandemic, the price of energy fell significantly. If you look at the price of wholesale gas, it went near to a couple of pence.

This was due to demand for energy falling due to businesses being shut down. However, this cost reduction has not been passed onto the consumer. The reason given is that energy companies buy all the energy for future use. They pay a price today for the energy they supply us in 6 months. 

Therefore, how is the price increase at the moment becoming an instant issue?

Surely we should be seeing the affects of the really low price from earlier in the year being passed onto us first and the hike in prices should be in 6 months?

Or do we have to accept that facts that energy companies have made a tidy profit over the last year?

[Deleted User]

The Ofgem Cap is not based just the movement in wholesale prices which included in the April 2021 Cap a figure of £23 to cover the write off of Covid-related bad debts. Since April prices have increased, hence the increase next month. No doubt there will be an even bigger hike in the Cap next April to reflect the increase in wholesale costs and losses on present fixed contracts.

Not all small suppliers hedge which is why they are so vulnerable to price fluctuations. If Ofgem makes hedging mandatory then this will also increase future energy prices. Someone has to pay the cost of borrowing.

All the detail is here

https://www.ofgem.gov.uk/publications/default-tariff-cap-level-1-october-2021-31-march-2022

JJ_Egan

Tidy profit and gone bust ???