Why aren’t energy prices falling faster?

Qyburn

Chris_b2z said:

According to the report, the Gas Distribution Sector in UK is defined as firms which 'operate the low-pressure gas distribution mains that carry gas from high-pressure transmission pipelines to end users'.
The Electricity Distribution Sector in UK is defined as firms which 'operate the low-voltage electricity distribution networks that carry power from high-voltage transmission lines to end users'.

Which companies in either of those sectors are involved in oil and gas exploration?

You're complaining about profits made by suppliers, but trying to back it up with data about companies and sectors which are not suppliers.

Astria

born_again said:

holywellman283 said:

A quick search of gas wholesale prices and it’s clear to see the prices are falling back in line with 2020 prices. So why are we still paying so much on our energy bills?! Can anyone explain?

Get yourself on Octopus Agile or Tracker. 👍

Or both, I saved about 40% over winter compared to the price cap as my gas was always around the 4p mark, and electric about 14p during day when I use it the most.

Chris_b2z

Qyburn said:

Chris_b2z said:

According to the report, the Gas Distribution Sector in UK is defined as firms which 'operate the low-pressure gas distribution mains that carry gas from high-pressure transmission pipelines to end users'.
The Electricity Distribution Sector in UK is defined as firms which 'operate the low-voltage electricity distribution networks that carry power from high-voltage transmission lines to end users'.

Which companies in either of those sectors are involved in oil and gas exploration?

You're complaining about profits made by suppliers, but trying to back it up with data about companies and sectors which are not suppliers.

1. I'm not complaining.

2. I never mentioned suppliers.

The topic being discussed here is 'Why aren't energy prices falling faster?'. I assumed that energy prices refers to the amount being paid in our bills in which case it's perfectly valid to mention the profits being generated by the various companies responsible for distributing gas and electricity to our homes.

markin

la531983 said:

They arent back in line with 2020 prices at all. Between May 19 and Sept 20 wholesale gas never went above 45p. In the last year its never been below 54p

And accounting for inflation will it ever get that low again?

"£0.45 in 2020 is equivalent in purchasing power to about £0.55 today, an increase of £0.10 over 4 years. The pound had an average inflation rate of 5.32% per year between 2020 and today, producing a cumulative price increase of 23.03%."



Only new generation will have a real affect on the price per MWH, When Finland's new nuclear came online that had a big impact on the price.

Nuclear power helps bring down electricity prices by 75% in Finland

https://www.thenationalnews.com/business/energy/2023/05/14/nuclear-power-helps-bring-down-electricity-prices-by-75-in-finland/

Scot_39

holywellman283 said:

A quick search of gas wholesale prices and it’s clear to see the prices are falling back in line with 2020 prices. So why are we still paying so much on our energy bills?! Can anyone explain?

Ofgem produce a regular price update breakdown.  Each cap period which includes the changes in pricing for several key areas.  Network policy costs, debt specials, the actual wholsale fuel cost etc.


From a posts of mine on other sources of cost  related costs in 2 other thread from late Mar just after current cap breakdown issued

But in context - thats far less than the £30 increase in so called policy charges this cap. £37 in last 5 years but £30 of it - just this Apr alone rising from current £157 to  £188 on Monday (Ofgem letter figures - rounded). And that increase to £188 excludes the new debt special £28 (replacing the covid debt special £11)and the ppm levelisation £10 - both for DD and Standard Credit customers only. 
Edit Apr 24
So arguably in reality for vast majority up £57  (28-11+10+ 31 =(188-157))

So £188+£38 in £1690 DF DD cap - 13% - £1 in every £8 spent.

If CI forecast and cap drops another c£230 in Jul - no doubt an an even higher fraction.


A lot of those policy charges and debt costs are a direct result of govt social and green policy.

Only MPs / govts can really address that - or authorise "arms length" Ofgem to.



And the other major change over n  years - network charges. Overlapping above in part.  I chose five years ago as before the recent CI rise based on Mar market data for July data wholesales costs were getting within c£100 of that years level.

"
2) Policy and Network Costs - Now vs Historic

These have risen in absolute - and as wholesale recover from Ukraine crisis levels (for now) - also a larger percentage share of new caps.
So take Apr 24 vs Apr 19
In Apr 2019 £1254 cap policy costs were £151, network costs £270.
In Apr 24 £1690 cap - policy costs £188, network costs £368

So "declared as" policy and network have added £135.
 
But factor in 2 other arguably policy
- £28 debt offset = adjustment allowance
- £10 ppm levelisation - as DD payers now directly subsidise PPM operating costs
and to some extent
the 0.5% extra on ebit (£8) itself in large part debt policy cost related.

That £135 rises to c£181."


£181 Over 10% of current DF cap

So 

In simple terms if the wholesale energy costs were identical to five years ago - the current cap would be approx £181 extra.



The next time you read campaigners and virtue signaling elites / politicians talking about how unfair PPM charges are - (by the way the traditional type really do cost more to administer) -  that fitting prepayment should be banned - as they were for several months last year etc as debts piled higher and higher -  and new even tighter rules put in place before restart etc  that has consequences.

Consequences the rest of us now pay for in our energy bills.


What I haven't done is checked exactly the splits for each change that went on SC or rates.

Scot_39

Oops as an example of simple breakdown and some background

https://www.ofgem.gov.uk/sites/default/files/2024-02/Default Tariff Cap Letter - 1 April 2024 .pdf


Note DD figures inc the £10 levelisation allowance referenced above and the prepay cap has a correspondimg saving of £49. 

And they don't pay the full £28 debt special either.


Loading bills for social costs -  when energy cheap was one thing.

This another.

BarelySentientAI

Chris_b2z said:

I'm not an accountant but the energy sector profits do look fairly healthy to me - 

https://www.ibisworld.com/united-kingdom/industry-trends/industries-highest-profit-margin/

Just to clarify this for people - the companies included in that list are:

National Grid Electricity Distribution
Electricity North West
Northern PowerGrid
UK Power Networks
Scottish & Southern Energy Networks
Scottish Power Energy Networks
SGN
Cadent
Wales and West Utilities

Return on investment is regulated for all of them, and they have to submit plans for any investments they want to make (which are refused if they are not value for money).

Cross-subsidy for any that are part of a larger group is prohibited due to regional monopoly regulations.

gbhxu

Perhaps Op also thinks that with wind, sun and water being free, this should also be a factor in electric prices?

Scot_39

gbhxu said:

Perhaps Op also thinks that with wind, sun and water being free, this should also be a factor in electric prices?

They are.

But not a helpful one - in terms of costs.

But whilst the elements may be "free" the cost of the wind towers and solar panels and wave machines etc to harvest that energy are not.

So in the current quarter the wind licensed in 2015 and beyond under CfD terms is once again adding £26  c1.5% of the £1690 DD cap.

In the price breakdown its included in the wholesale costs of £720 - so £26 /(720-26) = additional 3.7%.

And of course really only applies to the electric component of that £720 - so an even higher share of that specific cost.

Just as it was before the Russia Ukraine gas price spike / energy crisis.

And the literally £10s billions to upgrade grid to connect all the newly licensed wind and solar farms - or handle their increase capacity - some literally 500 miles plus from consumers / demand - will be a continuous factor in all our electric bills for decades to come.  Recently finally approved by Ofgem EGL2 a classic example.

You cannot run essentially 2 electricity generation systems to meet demand in parallel for the same price as 1 - yet that's exactly what we are now doing.

Renewables for net zero - carbon generation like gas and  biomass - when renewables without TWh of standby storage regularly fails to deliver anywhere near its installed capacity.

And compensating both when not required / not transmissible (as grid upgrades run years behind farm licenses only likely to worsen in short term)

wrf12345

There is confusion between the cost of gas and electric - which increases by a factor of three to four before it gets to the end user and the amount of "profit" retail energy is allowed to make (2 or 3 percent) in buying and selling that energy... but there is a reason why good accountants get paid so much and that 2-3 percent is only a paper profit, in reality...