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Today’s cold weather expected to push up tomorrow’s energy bills

What will the long winter and lowered gas stores mean for next season’s energy bills?

Today's cold weather is tomorrow energy bill increaseEnergy broker Catalyst reported that the cost of gas on the wholesale market remained at a high level this week, due to a combination of cold weather and low energy reserves.

While prices are expected to drop as the temperature increases, energy experts have warned that “recent wholesale prices clearly make price rises more likely” in the future, the Daily Mail reports.

There are two ways in which suppliers trade energy on the wholesale market: spot pricing, where the trading is doen a day ahead; and the ‘forward price’.

These wholesale costs account for around 69 per cent of household gas bills and 74 per cent of electricity bills. The rest of the bill’s cost is made up of things such as distribution, investment, taxes and smart meter provision.

Due to the extremely cold weather recently experienced by the UK, the country’s gas stores have been severely depleted, and the amount of gas stored away has dropped by 93.71 per cent, Gas Infrastructure Europe reported.

Reports of worryingly low gas reserves first emerged last month, and at the time, analysts warned that such a shortfall could see the long-term price of gas rocketing – adding as much as 15 per cent onto household bills by next winter.

However, the day-ahead price was seen to drop slightly last week, with Mark Todd from Energy Helpline reporting that it had come down from £1 per therm last week to around 80p.

Unfortunately, the cost of gas sold by way of the forward market had risen from 75p per therm to 75.75p. This is bad news for consumers, as this market is the measure often used by energy companies when predicting how much future wholesale energy will cost them.

It is likely, therefore, that 2013 will see price increases, further straining the budgets of already cash-strapped consumers. Last winter, all of the big six energy companies pushed up their gas and electricity tariffs. This means that the average bill payer is now shelling out £1,352 a year for their fuel needs, compared to just £819 five years ago.

Todd stated: “Autumn’s price rises were a shock to us as we could not see any justification for them relative to wholesale prices. Recent wholesale price rises clearly make price rises more likely.

“On the flip side, supplier profits have been good and these weaken supplier arguments for more rises. The insatiable demand of the markets for increased profits and stock prices may counter that.”

He added that the picture points to a price rise rather than a drop. This is likely to occur in late summer and autumn, and will see around five to ten per cent added to bills.

“However, the market is unpredictable and it’s not beyond the realms of possibility that rises will come sooner.”