Are we expecting BOE to remain at 4.75% on 8th February 2025?

CSI_Yorkshire

johnhenstock said:

CSI_Yorkshire said:

I don't think that graph shows what you think it does, and it doesn't support your point.

The wholesale component of the price cap dropped in the last update from £2170 to £1051 - i.e. it halved.
The electricity prices on your graph for the reference periods used for those caps changed from about 14p to about 12p.

Using that chart to conclude that the price cap is artificially keeping prices high is tenuous at best.

I know exactly what it shows.

It’s clearly showing gas and electricity prices being what they were at the end of 2021, towards the end of covid. Yes, energy prices were a bit higher than usual due to the increased demand as a result of the world coming out of lockdown, but still reasonable. Then it spiked in Feb 2022, following russia’s invasion of Ukraine, but it’s very obvious that prices are plumetting back to what they were, give or take.

I’m not saying the price cap is the only reason there are delays in the UK, but energy prices will plummet soon. It’s becoming increasingly difficult to justify selling something at record prices when the actual energy costs peanuts.

Ah, but which prices?  That's the bit you are missing.

Is that half hour spot market? Day ahead? CfD benchmark?  Advance purchase?  Or any other of the tens of ways electricity and gas are sold?  Which volumes are they tracking?

Until you know that you have no idea how it refers to actual retail pricing.

Otherwise it's like saying "the 'price of wheat' has gone back to what it was in 2021, therefore the price of chocolate cake will surely follow".

johnhenstock

A bit irrelevant given what we’re discussing. Regardless of sale method, fact is that prices are what they were before everything started becoming disproportionatelly expensive.

I understand that energy is often bought in advance on contracts covering many months, hence another factor that will prevent companies from passing price reductions instantly and, indirectly, maintaining a higher price cap than necessary.

Hence why I’m saying that within 3 to 6 months, these low energy prices will start being reflected in what’s being offered on the market. If your supply contract expires today and you bought in advance at 50p/kWh but you are now offered the same product at 11p/kWh, needles to say you will be able to offer your customers a very significant “discount”.

Leaving aside your attempt to discredit whatever chart online or my idea, I don’t see you explaining why you think that energy prices will stay where they are, in the context of wholesale prices clearly going back to what they were pre-covid/Ukraine.

And please don’t start about the standing charge. Even at the current obscene rate, we’re talking £20-25/month/product.

CSI_Yorkshire

Yes, leaving aside the standing charge, which is a relatively cheap and sensible method for spreading the fixed costs of the system and has been discussed, reviewed, and determined to be the least worst solution several times.

If you want an energy contract that tracks the spot wholesale price, they exist.  At the moment it's often cheaper than the standard rate, but last winter would have been several times higher (if the price cap hadn't subsidised it).

The price cap is simply that, a cap.  If a supplier could suddenly buy energy far under the cap, which is your suggestion, they could undercut all the other suppliers that are at the cap whilst still making substantial profit.  None are.

Energy prices did not go up to where they should have done during the past year (up to a £4000 'typical' bill), because there was the cap.  They were held at an artificially low level roughly corresponding to the wholesale price metrics that we are actually seeing now.  There has been a large drop in what the raw retail price would likely be, it's just been obscured.  The price cap has existed since 2019, so even pre-COVID.

Energy is unlikely to be an upward pressure on inflation in the near future - although if we get a cold winter prices will likely spike again as they always do in such circumstances - but according to the market researchers in this area it is not going to plummet.  These predictions are based on the same 6-week lagging wholesale market indicators, so will be reflecting any drop that has already occurred.

MattMattMattUK

johnhenstock said:

A bit irrelevant given what we’re discussing. Regardless of sale method, fact is that prices are what they were before everything started becoming disproportionatelly expensive.

It is entirely relevant, spot prices are often volatile, day ahead/month ahead less so, but move more seasonally, year ahead, advance purchase, on-demand supply etc. are a far better method. If you think that the method of sale is irrelevant then you have absolutely no idea how the energy markets operate. 

johnhenstock said:

I understand that energy is often bought in advance on contracts covering many months, hence another factor that will prevent companies from passing price reductions instantly and, indirectly, maintaining a higher price cap than necessary.

It is not just that though, buying ahead even now is more expensive than the spot price by some way, but if a supplier needs a GWh of energy for a day in December they cannot buy that at today's spot prices, they either need to buy it on a future or pay the spot price at the time they need it. If you want to pay the spot price go on a tracker, but your costs will be volatile.

johnhenstock said:

Hence why I’m saying that within 3 to 6 months, these low energy prices will start being reflected in what’s being offered on the market. If your supply contract expires today and you bought in advance at 50p/kWh but you are now offered the same product at 11p/kWh, needles to say you will be able to offer your customers a very significant “discount”.

Again, this demonstrates you have no understanding of the energy markets. 

johnhenstock said:

Leaving aside your attempt to discredit whatever chart online or my idea, I don’t see you explaining why you think that energy prices will stay where they are, in the context of wholesale prices clearly going back to what they were pre-covid/Ukraine.

If you want to have credibility you need to present a range of quantified data, not a chart that does not explain what energy costs it is talking about or reflect on how energy is actually bought. There are many sites that have been pretty much spot on with their predictions of energy prices, have a look at one of them. Cornwall Insights have been particularly accurate, they also explain their reasoning, reference their data in detail etc. Try having a look at them to gain some understanding of the sector.

johnhenstock said:

And please don’t start about the standing charge. Even at the current obscene rate, we’re talking £20-25/month/product.

We are not "starting" on the standing charge, however the rate is not obscene. If you have a look at how it is constructed you can see what they money is spent on (hit, network maintenance and upgrades, small amount of social tariffs, a bit of tax etc.).

johnhenstock

again, we're talking some technicalities which, in the long term, will fizz out. If back in 2021 the typical bill was, let's say £1000 (I'm exaggerating for the sake of example) and wholesale prices across the globe are back to those levels, please explain why typical bills will remain at £2000.

what makes you think that energy companies will be able to get away with this?

same with petrol... oil price goes up, fuel price shoots up. oil price goes down, fuel price comes down... eventually.

MattMattMattUK

johnhenstock said:

again, we're talking some technicalities which, in the long term, will fizz out. If back in 2021 the typical bill was, let's say £1000 (I'm exaggerating for the sake of example) and wholesale prices across the globe are back to those levels, please explain why typical bills will remain at £2000.

These are not "some technicalities", there is no one "wholesale price", as has been pointed out to you multiple times, energy is priced very differently to most other things. The spot price of gas is pretty cheap at the moment, the demand for it with a heatwave in Europe and it being the summer in most of the world's largest consumers means that spot prices are pretty low, However if you want to purchase gas for delivery in Q4 or Q1 then that cost is much higher. The fact that you refused to understand how the energy market works is the issue, it is a gross oversimplification to talk of "wholesale price", so simplified that it makes comparisons worthless.

johnhenstock said:

what makes you think that energy companies will be able to get away with this?

Largely because people understand the market, so there is not "getting away with it" to be done.

johnhenstock said:

same with petrol... oil price goes up, fuel price shoots up. oil price goes down, fuel price comes down... eventually.

Gas and electricity are not the same as petrol, not by a mile. The margins are now however wider on petrol and diesel than they were historically, currently around 4.6%, when historically they were closer to 3%, largely down to the way Asda has been less aggressive in perusing market share at the expense of margin, which has allowed margins to somewhat widen. 

CSI_Yorkshire

Again, you're still comparing apples and oranges.

It's not a technicality to point out that looking at a particular price trend that is tenuously linked to the retail price does not directly represent the complexity of an international market.

In 2021 the 'typical' electricity bill was £700.  Today the 'typical' electricity bill is £1050.

£100 of that difference is the cost of maintaining, repairing and extending the network.  Things like the cost of steel, concrete, copper etc. (not related to wholesale prices)

£70 of that difference is covering the debts of the suppliers that went bust recently. (not related to wholesale prices)

£30 of that difference is the allowance for operating costs, which is mainly the cost of employees. (not related to wholesale prices)

£10 of that difference is the cost of bad customer debts. (not related to wholesale prices)

Ignoring some small rounding of other components, that leaves the "plummet" that you are expecting based on wholesale prices to reduce the £1050 to about £900.

The figures for gas are relatively similar (£500, £900 and about £700 respectively).

For both fuels, most of the drop in the 'wholesale' component has already happened.  You didn't see it because the government stopped the prices going up.  If prices didn't go up when 'wholesale' did, why should they go down when 'wholesale' drops?

johnhenstock

https://www.thelondoneconomic.com/news/something-unfathomably-wrong-energy-giant-records-4-9-billion-profit-as-households-struggle-354265/

Do you understand NOW that your theory about how energy markets work is irrelevant? There’s no need to pah this much for energy and energy companies DON’T pay the higher rate, but are profiting from the record lows on the market…

CSI_Yorkshire

johnhenstock said:

https://www.thelondoneconomic.com/news/something-unfathomably-wrong-energy-giant-records-4-9-billion-profit-as-households-struggle-354265/

Do you understand NOW that your theory about how energy markets work is irrelevant? There’s no need to pah this much for energy and energy companies DON’T pay the higher rate, but are profiting from the record lows on the market…

Ok, having just answered a similar inane point on the energy board, I'll copy and paste the answer here:

"Just had a look at the results that they claim to be reporting on.

The figure they are quoting is the worldwide EBITDA figure.  The worldwide profit figure was actually about £900 million.

The EBITDA figure for the UK market, both domestic and commercial, gas and electricity combined was £740 million.  If you applied the same ratio, which would be a massive overestimate given the margins made in other countries, that would give a profit figure of £135 million - or less than £25 for each of their customers."

At least the article you quote mentions that the figure is the worldwide number (and isn't a profit figure) - even if the clickbait headline doesn't.  

RelievedSheff

Anyway back on topic.

Assuming inflation carries on its downwards trend when the latest figures are announced, I predict that there will be one more rate rise at the next BOE meeting to 5.5%.

I don't believe that they will go any higher than that.