The UK is coming off a mild winter, gas storage is high and wholesale prices are falling. So where are the price cuts?
The Times reports that wholesale energy prices have dropped by 50% since the start of the year— the lowest they’ve been in nearly four years — yet gas and electricity consumers shouldn’t expect to see those changes reflected in their energy bills anytime soon.
All six major suppliers raised prices last year, upping annual costs to their customers anywhere from more than 10% (npower) to nearly 4% (E.ON).
At the time of the rise announcements, most suppliers blamed rising wholesale costs (as well as distribution costs and government subsidies) for the action.
Show us the money
Now that wholesale prices have dropped, customers are wondering when when they can expect price drop announcements.
“It would great if one of the big six companies could now take the lead and cut prices, laying down the gauntlet to the other energy companies to do the same,” Ann Robinson, director of consumer policy at uSwitch, told The Times.
However, it is believed that suppliers are eschewing a price drop in an effort to protect themselves from a potential government-enforced price freeze.
Labour continues to campaign with promises to freeze energy prices for 20 months for consumers if voted into power. It is suspected that suppliers may be thinking ahead to potentially being in a position where they cannot raise prices if wholesale prices change in the future.
Ofgem: ‘Vote with your feet’
Ofgem has stepped in, demanding the big six explain how the falling wholesale prices will impact consumer bills — or risk further degrading consumer trust in the energy sector:
“The big six suppliers tell us that they think the market is competitive, but our research shows that consumer trust is low. Therefore if suppliers are going to start rebuilding that relationship they need to take the initiative and explain clearly what impact falling wholesale energy costs will have on their pricing policies,” Ofgem Chief Executive, Dermot Nolan said.
Nolan went on to advise consumers to “vote with their feet” by shopping around for energy and switching supplier.
‘Up like a rocket, down like a feather’
Robinson applauds this announcement from the energy regulator:
“We wholeheartedly agree with Ofgem – energy suppliers have some explaining to do.
“Falling wholesale prices should come as welcome news for consumers but until there is an impact on their energy bills it’s hard to see the benefit. The average household energy bill has increased by £53 since last year yet wholesale prices have fallen by 38% for gas and 23% for electricity over the same period.
“There is a perception that when wholesale prices go up, energy bills rise like a rocket but when prices come down, bills fall like a feather. Explaining energy pricing will be an effective first step towards restoring trust in the industry.
“However, rather than long-winded explanations on why prices are still so high, what consumers really need to see is a reduction to their energy bill. Actions speak louder than words.”
First Utility — an independent energy supplier with the cheapest plan on the market at the moment — took the opportunity to remind consumers they have options outside the big six:
Ed Kamm, Chief Customer Officer at First Utility said:
“Energy wholesale prices have dropped since the start of the year and we believe it’s only right that these savings are passed on to customers to help lower their energy bills. This is where competition plays a crucial role in the energy market – if the big six don’t want to pass on savings then consumers have the option to switch to suppliers that will. Our cheapest tariff is the only sub-£1,000 on the market today and more than a £100 lower than its equivalent last year, showing that it is possible to pass on lower costs to customers.”