Domestic energy prices unlikely to fall until autumn…

January 2009:

One of the UK’s largest independent energy consultants says hopes of energy cuts this spring are now fading and any anticipated cuts are likely to be delayed until autumn.

With the country descending into a cold snap millions of households will endure a winter of fuel poverty as the current cold spell continues.

Householders were hit by two price increases for gas and electricity during 2008. The average dual-fuel bill now tops £1,000 a year – £300 more than it was a year ago and with bills going up an average of 40% since January last year.

And some people will be too frightened to put the heating on right now, worried about these extra costs.

But since their peak last summer wholesale energy prices have been coming down, but volatility in the energy markets has never been higher as supply and demand plays a major factor in the market prices and any sustained cold weather will have an immediate impact on the market price.

The prices have fallen as new projects to import gas have eased concerns about a supply gap caused by sliding output from the ageing North Sea fields and the cost of wholesale gas is linked to the price of oil, which has dropped dramatically since its peak last summer.

But recent demand in Britain has increased due to freezing conditions and the row between Russia and Ukraine has made the market more volatile.

The price that we pay for electricity is largely dictated by wholesale electricity prices. As approximately 40% of UK electricity generation comes from gas-fuelled power stations then wholesale electricity prices are in turn obviously affected directly by the wholesale price of gas.

But domestic energy is bought through a variety of long and short-term contracts, which means there is a time lag between changes in wholesale prices and changes in domestic prices.

Chris Hurcombe, of Catalyst Commercial Services, said yesterday “That any anticipated price cuts, are likely to be delayed until the autumn”. He said: “With wholesale energy costs falling since the highs of last summer, domestic prices were expected to come down in the spring, but recent development means we are unlikely to see any reductions until later this year”

Hurcombe concluded “We are likely to see price cuts of between 10 and 15%, however any price cuts will be too little to late and it would be better if the supply companies could find a way of cutting prices when people need the energy most during the winter periods”

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