What should the unit prices be to cover wholesale prices?

Spies

Theorising that the cap is going to go up in April, how much should we be paying per unit of gas and electricity in order for the suppliers to not go broke?

Latest figures https://forums.moneysavingexpert.com/discussion/comment/78903593/#Comment_78903593

macman

No one can answer that, because we don't know what the spot wholesale price might be in April, we don't know to what degree each supplier has hedged forward (or not), and we don't know what margin each supplier will have to make to avoid becoming insolvent. Watch this space...

QrizB

Spies said:

Theorising that the cap is going to go up in April, how much should we be paying per unit of gas and electricity in order for the suppliers to not go broke?

According to Ofgem's press release on the current cap, it was based on a wholesale gas price of about 64p per therm (a therm is about 29kWh, so 2.2p per kWh) and a wholesale electricity price of around £70 per MWh (7p per kWh), based on prices from Febuary to July 2021.

The new cap will be based on prices from August 2021 to January 2022; roughly half that period is now behind us, and so we've a pretty good idea which way things will change. The only thing that needs guessing is exactly how much prices will rise by.

Wholesale prices today (and for pretty much all of October) are roughly triple the values used in calculating the last cap, something like £2 a therm and £2 a MWh respectively. I'm guessing they will stay this high through the winter to January (gas futures at TheICE are currently over £2 a therm every month until April 2022). All other things being equal, you might expect the gas unit price to rise by 4.5p (from 4p, to 8.5p) and the electricity price by 15p (from 21p, to 36p).

I'm sure the people in the energy companies and Ofgem will have spotted this and will be warning the relevant government officials. The government officials are, in turn, no doubt hoping something comes up between now and April to stop them having to almost double the energy cap!

Sea_Shell

QrizB said:

Spies said:

Theorising that the cap is going to go up in April, how much should we be paying per unit of gas and electricity in order for the suppliers to not go broke?

According to Ofgem's press release on the current cap, it was based on a wholesale gas price of about 64p per therm (a therm is about 29kWh, so 2.2p per kWh) and a wholesale electricity price of around £70 per MWh (7p per kWh), based on prices from Febuary to July 2021.

The new cap will be based on prices from August 2021 to January 2022; roughly half that period is now behind us, and so we've a pretty good idea which way things will change. The only thing that needs guessing is exactly how much prices will rise by.

Wholesale prices today (and for pretty much all of October) are roughly triple the values used in calculating the last cap, something like £2 a therm and £2 a MWh respectively. I'm guessing they will stay this high through the winter to January (gas futures at TheICE are currently over £2 a therm every month until April 2022). All other things being equal, you might expect the gas unit price to rise by 4.5p (from 4p, to 8.5p) and the electricity price by 15p (from 21p, to 36p).

I'm sure the people in the energy companies and Ofgem will have spotted this and will be warning the relevant government officials.

The government officials are, in turn, no doubt hoping something comes up between now and April to stop them having to almost double the energy cap!

As you allude to, most of the price increases are already "baked in" so it's just "what happens next".   As its unlikely to fall back of the cliff over the winter, I think it's fairly safe to be thinking that the April 22 cap would be not much less (if any) than those figures you've calculated.

What about standing charges?    Will they feel they need "massaging" too, to enable a bit more clawback.  Or do they actually have any bearing on the actual cost of maintaining the networks/supplies?    I wonder what a "true cost" standing charge would be for each fuel?


As for your last sentence.  I think you're bang on!!!    The government will start doing their headless chicken routine, once the figures start to be calculated/released in February 22.

This is going to otherwise hit everyone HARD, as many, many more fixed deals will have ended by then with us all being rolled onto the SVR (myself included).

This, along with the possible 5% increase in Council Taxes up and down the country, will be the last straw for many a household budget.

QrizB

Sea_Shell said:

What about standing charges?    Will they feel they need "massaging" too, to enable a bit more clawback.  Or do they actually have any bearing on the actual cost of maintaining the networks/supplies?    I wonder what a "true cost" standing charge would be for each fuel?

I wondered about that. Then I realised that, for an "average" electricity user on 2900kWh/yr, the energy cost at 36p/kWh is already £1044/yr. Another £30-£50 on the SC to cover eg. the SoLR costs will hardly be noticed.

Sea_Shell

Having done some very basic maths, on our usage (E-1700, G-13000), it would look something similar to this...

Current annual cost (fixed deal until April) = £780  
Current price cap = £1045
Potential price cap (based on QrizB's figures*) = £1900


OUCH!!!!!


*assuming current SC pricing.

Effician

If this hypothesis does pan out it's quite a winfall for the gov't.

MWT

Sea_Shell said:

What about standing charges?    Will they feel they need "massaging" too, to enable a bit more clawback.  Or do they actually have any bearing on the actual cost of maintaining the networks/supplies?    I wonder what a "true cost" standing charge would be for each fuel?

Historically there hasn't been a lot of movement in the standing charge cap:

Annual cap inc. VAT

Oct 2018 - Mar 2019	£83.11
Apr 2019 - Sep 2019	£85.47
Oct 2019 - Mar 2020	£85.82
Apr 2020 - Sep 2020	£89.00
Oct 2020 - Mar 2021	£89.00
Apr 2021 - Sep 2021	£90.84
Oct 2021 - Mar 2022	£90.80

It actually went down a little in the most recent update.

Sea_Shell

thanks for those SC stats, interesting.   

Obviously most of us have never had to worry or even consider the price cap, so had no idea really how it was made up.

Now it's at the top of our agenda!!!!

[Deleted User]

Don’t forget to factor in the cost of all the supplier failures. Ofgem will add SoLR costs (including failed supplier credit balance protection), plus any green levies owed to all our future bills. The CEO of BG has said this week that this could amount to £200

https://www.citizensadvice.org.uk/about-us/about-us1/media/press-releases/failed-energy-suppliers-cost-consumers-255m-since-2018-says-citizens-advice/

PS Ofgem is currently consulting on adding the cost of providing power supplies to EV charger sites to all our bills; BG is pressing for a levy so that it can re-open the Rough gas storage facility and Kwasi wants us to pay for his new nuclear power station.

MWT

Also, to the point about how much of the SC cap reflects real costs, 83% of the current cap is comprised of three components:

Network Cost Allowance - 20%

Operating Cost Allowance - 50%

Smart Metering Net Cost Change 13%