GOOD ENERGY GROUP PLC bySimon Shaw
Posted on14 June 2023
- energy bill support
- energy bills
- Energy market
- energy prices
Wholesale energy prices are finally falling, and energy bills are following suit.
In this blog we outline the reasons behind the falling prices and how this then filters through to household bills. Finally, we explain what changes in energy prices means for the governments' Energy Price Guarantee (EPG) discount and how it impacts the amount you pay for your energy.
Falling wholesale pricesThe good news is that after months of volatility in wholesale energy markets, owing to a number of factors such as Russia's invasion of Ukraine and the response to the COVID-19 pandemic, wholesale prices have been falling.
This has been largely driven by countries across Europe having increased levels of gas storage over the last few months in order to build resilience ahead of next winter. At the same time, Liquified Natural Gas (LNG) has been arriving in abundance throughout 2023 to displace the need for stored gas, whilst nuclear generation, particularly in France, has returned or remains on track to return later this year.
All these factors in turn, along with the Sterling growing in strength compared to last year, have contributed to the recent wholesale energy price decreases. That said, prices are still higher than before the global gas crisis.
How do wholesale energy price changes impact prices suppliers charge?Responsible suppliers buy power months in advance in a practice known as hedging. This is a form of risk mitigation from extreme price volatility, and something we have previously talked about in relation to how we manage our pricing.
Because of this advance planning, movements on the market - i.e. falling or rising prices - are not immediately reflected in the prices we pay on our energy bills.
So, whilst wholesale prices have thankfully started to fall and savings are able to be passed onto consumers, prices still do remain relatively high - well above a pre-2021 average.
Falling wholesale gas prices also impact renewable electricity suppliers. This is because the UK relies on a 'merit order system', where the most expensive form of power generation at the time (often a gas power plant) sets the price for everyone, including renewables.
Since its introduction in October 2022, the government Energy Price Guarantee (EPG) has been providing a discount to reduce household energy bills. The EPG and Ofgem's price cap work together. Ofgem update the price cap every quarter, and the EPG then provides a discount to the unit rates of electricity and gas if the price cap is above a certain level, or threshold.
Up until 30th June 2023, this threshold has been set at £2,500. From 1st April to 30th June, the price cap was set at £3,280, and so the EPG delivered a discount to most households - including those on non-price capped tariffs like our Standard Tariff.
Because of the recently announced lower cap level of £2,074, the government will not be providing financial support for most households' energy bills between July and September. The exception to this rule is for customers paying via prepayment meters, who will continue to get a small amount of support from the government.
What does this mean for my bills?If you are a Good Energy customer, we will be writing to you to explain exactly how this change will impact you.
Most of our customers will see their estimated annual bill reduce. However, because of the government support no longer being applied, the amount paid by some customers on our Good Energy Standard Tariff may increase. This will depend on whether you are a dual fuel, electricity only or gas only customer, and how much energy you use. We will explain this when we write to you.
As mentioned already, households paying for gas via a prepayment meter will receive a small discount. This is because the government committed to removing the disparity between prepayment and direct debit bills.
Should energy prices increase enough before the end of March next year, the government will once again step in to provide a discount on electricity and gas unit rates. They are yet to announce plans for any further support beyond that point. We are expecting further details to be set out shortly.
Simon Shaw
Regulatory Affairs Officer
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Good Energy Group plc published this content on 14 June 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 June 2023 14:23:03 UTC.
