Where is the kWh price heading in 2022?

[jayc89]

4 minutes ago, SteamyTea said:

Because we have a price cap. It will be reducing in April I think.

 

Volatile pricing, which is what is being trialled at the moment is going to be horrendous for most people.

 

Isn't the price per therm now lower than it was at the start of '22 and large chunks of '21 (and has been for the most of '23 so far)?

[SteamyTea]

1 minute ago, jayc89 said:

 

Isn't the price per therm now lower than it was at the start of '22 and large chunks of '21 (and has been for the most of '23 so far)?

Quite possibly, but there is exchange rate changes.

And the government has bailed out each bill payer between £400 and £550 pound.

And we have a price cap which is adjust every 3 months now I think, half the time of 6 months ago.

And the government has bailed out Bulb Energy by £6.5bn, that is about £260 extra on our bills.

[jayc89]

6 minutes ago, SteamyTea said:

Quite possibly, but there is exchange rate changes.

And the government has bailed out each bill payer between £400 and £550 pound.

And we have a price cap which is adjust every 3 months now I think, half the time of 6 months ago.

And the government has bailed out Bulb Energy by £6.5bn, that is about £260 extra on our bills.

 

The bailouts shouldn't be factored into OVO's variable tariff rate though, should they? Or are they being baked into the wholesale prices by the govt. prior to reaching the suppliers? 

[SteamyTea]

1 hour ago, jayc89 said:

The bailouts shouldn't be factored into OVO's variable tariff rate though, should they?

It is added to the meter rental, which has doubled in most cases.

 

Rather pisses me off that I am paying to bail out companies that attracted skinflints that wanted to save a few quid a year by buying energy of a company that had an unviable business plan.

 

If a company offers a better deal than the major players in the market i.e. British Gas, EDF, then you have to ask where they are making the savings.

[markc]

Just now, SteamyTea said:

It is added to the meter rental, which has doubled in most cases.

 

Rather pisses me off that I am paying to bail out companies that attracted skinflints that wanted to save a few quid a year by buying energy of a company that had an unviable business plan.

 

If a company offers a better deal than the major players in the market i.e. British Gas, EDF, then you have to ask where they are making the savings.

Couldn’t agree more, ive been saying this for years.

[SteamyTea]

2 minutes ago, markc said:

Couldn’t agree more, ive been saying this for years.

Trouble is, the scale of the problems means we all have to chip in.

I would be happier if the Government increased basic income tax by 2p.  I am sure I could cope with that, and anyone that earns more than me and @ProDave, could stop buying a coffee at 3 quid a cup, or knock a minute of the showering time.

Really, 2p on basic rate is pretty small considering we have a £12k+ tax free allowance (thankfully frozen).

 

I do think it is unfair that we each household has to bail out some bad energy companies.  Not as if I bailed out Bon Marché, whose shops I had never entered, every time I buy some new knickers from Poundland.

[jayc89]

18 minutes ago, SteamyTea said:

It is added to the meter rental, which has doubled in most cases.

 

Rather pisses me off that I am paying to bail out companies that attracted skinflints that wanted to save a few quid a year by buying energy of a company that had an unviable business plan.

 

If a company offers a better deal than the major players in the market i.e. British Gas, EDF, then you have to ask where they are making the savings.

 

If it's on the rental, which I agree is crazy high, why haven't the per unit prices come down in line with wholesale prices? I know there should be a few month's lag due to when it was placed in storage, but I'm talking about the last 3-4 months now. 

[SteamyTea]

1 minute ago, jayc89 said:

why haven't the per unit prices come down in line with wholesale prices

Mine did in January, but you probably still pay less though OVO than I do with EDF.

You cannot have it all ways, delayed increases and instant decreases, how we got in this mess to start with.

[AliG]

4 hours ago, jayc89 said:

Given we're now seeing a, fairly substantial, drop in wholesale gas prices, why isn't this being reflected in household bills? I'm on OVO's variable rate tariff now and for the past 3 months I've been paying the same 9.75p/kwh of gas usage. Electricity unit price only changed once during the same period and in the wrong direction from 31.43 to 31.45p/kwh!

 

It's like fuel prices all over again...

 

The price cap works in arrears.

 

For each period, they work out what wholesale costs averaged in the previous period (the period recently changed to three months from six months) and set prices to reimburse the energy suppliers. Note it is the average price over the period, you cannot say the price today is cheaper and then just apply it to the whole period.

 

This is why many of them went bankrupt last year as when there was a big increase in wholesale prices they had to keep supplying at a massive loss which they were then compensated for in the next period. The small suppliers did not have the borrowing capacity to cover the working capital shortfall.

 

I have to read the full formula for how they calculate the price and which wholesale prices they use. The chart below is the Winter 23 gas price which gives you a rough idea, but is not exactly the same as the price used in the formula.

 

A simple calculation to get to the price per kWh is to divide this price by 29.3 (there are roughly 29.3 kWh in a therm and then add 1p to cover overheads and an allowed 1.9% profit margin + 5% VAT.

 

So the January price cap was based I think on prices from September - November. the price averaged around 375 a therm, which would have given a price of around 15p/kWh. Thus the government is subsidising prices at the moment.

 

The April cap will be based on December-February prices which will have averaged around 250/therm. So around the current price for the next cap and no government subsidy needed. I think the price has actually been a bit higher based on the gas contract used n the formula and so the price may rise a little bit.

 

If prices stayed where they are today, the cap would fall to 7-8p/kWh in the July cap. Note I would not call this a forecast like people quoted in the media. All they do is calculate the cap based on the price staying the same as today forever. Thus the nonsense forecasts of £7-8000 utility bills when the price of gas spiked briefly to 7-800p/therm.

 

Electricity prices would move in a similar way. Prices should fall below the current cap in July.

 

The quoting of the cap as a price per year is also incorrect, as people use considerably more energy in winter than summer. Thus even if the next cap is higher than the current one, most of your gas use in winter will be behind you.

 

 

 

[TerryE]

@AliG you beat me to it, so I'll preçis my reply. The current daily wholesale spot rate [see here] is 13.6p/kWh down from it's peak at 59p in September and back at hasn't been since Sept '21.

 

A lot of suppliers took a bad hit and some failed because of capped vs supply pricing.  We are with OVE who had a policy of back-to-backing their fixed price consumer pricing with fixed price supply contracts.  This meant they could complete with the likes of bulb, but at least they weathered the crisis without totally draining their coffers which is why their current TIRs are more competitive than the likes of Octopus.

 

I am just looking forward to the majors offering a ToD tariff to smart metered customers.

Edited January 27, 2023 by TerryE

[AliG]

What is really really annoying me is the massive number of headlines proclaiming we were all doomed as the wholesale price went up versus the almost complete lack of comment as it has fallen.

 

It shows the media's massive bias towards scaring people and causing alarm.

 

If the war ends prices will fall back to where they were before if not arguably lower as we will have more supply of gas than ever and people will have reduced use n the interim. There will be massive oversupply of LNG. This could easily be the situation in 2024. Or of course the war could escalate and the price could be higher too, but my bet is on the war being over and prices collapsing.

 

Ramping short term prices is a bad long term strategy for commodity producers as it hastens people's efforts to find ways not to buy your commodity in the long run.

[Marvin]

Why are we paying so much for electricity?

 

Here's one answer:

 

https://www.bbc.co.uk/news/business-64647854

[JohnMo]

We are being ripped off, all the energy companies are taking the p..., and the government is letting them.  The pricing rules should be changed and only the government can do that.  They don't care because the tax grab is great for them.

[PeterW]

4 minutes ago, Marvin said:

Why are we paying so much for electricity?

 

Here's one answer:

 

https://www.bbc.co.uk/news/business-64647854

Eh..?? From the article..

 

“..But its UK consumer energy supplier lost more than £200m in the year…”

 

The big 6 are making money off their generation businesses as the wholesale price benefits them. 

[joe90]

I saw the news this morning and they were saying the profit on electricity generation is because the price is linked to gas 🤷‍♂️ why?

[JohnMo]

5 minutes ago, joe90 said:

linked to gas 🤷‍♂️ why

 

36 minutes ago, JohnMo said:

The pricing rules should be changed and only the government can do that. 

The government ultimately set the rules 

[SteamyTea]

18 minutes ago, joe90 said:

I saw the news this morning and they were saying the profit on electricity generation is because the price is linked to gas 🤷‍♂️ why?

By picking the cheapest (at the time) generation method, the idea was to set a target for other generation technologies to aim for.

Been a good policy as wind and solar had surpassed the 'cheapest' generation type.

Only nuclear is given special treatment now, and I doubt that will happen again.

Just taking EDFs generation profits of around £1bn for the last year, it is peanuts compared to the £23+bn they are spending at Hinckley.

I think Centrica paid close on £1bn in corporation/windfall tax, in top of all the other taxes they normally pay i.e. VAT, employee taxes, business rates, vehicles etc.

[andyscotland]

1 hour ago, SteamyTea said:

By picking the cheapest (at the time) generation method, the idea was to set a target for other generation technologies to aim for.

Been a good policy as wind and solar had surpassed the 'cheapest' generation type.

Only nuclear is given special treatment now, and I doubt that will happen again.

Just taking EDFs generation profits of around £1bn for the last year, it is peanuts compared to the £23+bn they are spending at Hinckley.

 

It is, but that £1bn is profit after writing down the investment on the original plants that produced it. I imagine they are expecting a decent return on Hinckley once complete (especially since prices/profits increase with inflation but the cash invested in the plant does not - that £23bn will look smaller & smaller over time).

 

1 hour ago, SteamyTea said:

I think Centrica paid close on £1bn in corporation/windfall tax, in top of all the other taxes they normally pay i.e. VAT, employee taxes, business rates, vehicles etc.

 

Well technically we pay VAT, they just collect it. Likewise the lions share of employee taxes.

 

How much is the government spending to subsidise bills, support struggling businesses, pay benefits to those losing jobs or on reduced working due to the economic situation, not to mention inflationary pressures on pensions and public sector pay?

 

Not convinced Centrica's tax bill will make much of a dent in that, tbh, even if you include everything.

 

Surely it'd be better if energy prices were lower and Government and Bank of England had less to do?

[PeterW]

58 minutes ago, JohnMo said:

 

The government ultimately set the rules 

Not on wholesale gas trading - that is set by the global commodity markets. 
 

1 hour ago, joe90 said:

profit on electricity generation is because the price is linked to gas 🤷‍♂️ why?

Spot price and gas futures trading .. basically they buy a certain amount of gas in the future at a price per therm which they then use to set the generation price on the electricity futures market to the wholesale market. In some instances they have purchased gas where the cost is lower and therefore the “profit” is the difference between price paid and price offered - it’s basically spread betting on a monster scale !

[JohnMo]

56 minutes ago, PeterW said:

Not on wholesale gas trading

Wasn't talking gas price, was talking electric which is directly pegged to wholesale gas price, be wind or whatever. 

[jack]

2 hours ago, andyscotland said:

It is, but that £1bn is profit after writing down the investment on the original plants that produced it. I imagine they are expecting a decent return on Hinckley once complete (especially since prices/profits increase with inflation but the cash invested in the plant does not - that £23bn will look smaller & smaller over time).

 

Even better than that, I believe they have a guaranteed price per kWh to fall back on, for at least a couple of decades. [Edited to add:] The agreement is for 35 years, and is inflation-linked.

 

Also, HS2 is currently looking like costing up to £100b (and could be more). Imagine if we'd used that to build out more nuclear. Even at the crazy £23b cost and insane price guarantees, we could have had at least three more nuclear plants, drastically increasing our low carbon baseload generation capacity.

[Pocster]

10 minutes ago, jack said:

Also, HS2 is currently looking like costing up to £100b (and could be more). Imagine if we'd used that to build out more nuclear. Even at the crazy £23b cost and insane price guarantees, we could have had at least three more nuclear plants, drastically increasing our low carbon baseload generation capacity.

HS2 is a mega money pit ! Also how ( what time scale ! ) will it ever return its investment costs . Some nukes be far better ( power stations not missiles ) 

[SteamyTea]

Not to be too controversial, but isn't HS2 really just a reflection of our under investment in the rail infrastructure.  The kind of thing that we should have done decades ago.

Unlike Wales and its roads, where all development is stopping.

[markc]

HS2 is a money pit and was intended to keep us on par with Europe to make a Europe wide high speed rail web. Italy moaned about it, but got on with the build (no protestors adding billions to the costs) and it’s now a fantastic system to use.

[Marvin]

6 hours ago, PeterW said:

Eh..?? From the article..

 

“..But its UK consumer energy supplier lost more than £200m in the year…”

 

The big 6 are making money off their generation businesses as the wholesale price benefits them. 

Hi @PeterW

 

So a £200m loss selling the power and a £1,200m profit producing the power. I won't cry for them yet then.... 

 

I make a 100% loss producing quotes and a profit from awarded contracts. So What!