Wholesale energy market update
Four weeks ago, we updated you on what had been going on with wholesale energy prices. Wholesale energy costs typically make up around 40% of most people’s energy bills, and therefore require close attention.
Since we published the blog, prices have remained high, and several other suppliers have increased the price of their variable tariffs. We held off for as long as possible. However, there have been several changes in the wholesale energy market over the last few weeks that have forced us to increase our price for the first time.
Those were the days
In our last blog, we explained that wholesale prices had been increasing for the following reasons:
- Major maintenance had disabled key generators in the UK and throughout Europe
- Safety concerns had halted work on Europe’s largest onshore gas field
All our electricity comes from renewable generators, but the price we buy it at is affected by the wholesale cost of energy, and a big driver of this is the cost of oil and gas. Oil and gas prices have risen this year, which have fed into both renewable and non-renewable electricity prices.
The factors above remain relevant today. And there have also been three more changes we wanted to update you on.
1. French nuclear inspections
The regulator responsible for French nuclear safety is inspecting steel components used in the original construction of the nuclear generators. These components have a high concentration of carbon which can reduce the fracture toughness of material, reducing its ability to withstand the propagation of cracks. You don’t want cracks in a nuclear reactor.
To carry out these inspections, eighteen nuclear reactors across France have been powered down this winter. That’s five more than was planned at the time of writing our last blog. Love or hate nuclear, the UK imports a significant amount of energy from France. As a result, disruption on this scale has a knock-on effect on UK prices too.
2. Increased cost of gas
The UK had lower imports of Liquified Natural Gas (LNG) recently, as much more Qatari LNG is being exported to Asia. Due to rising coal prices and cold weather, especially in South Korea, demand for LNG on that continent has become much higher, pushing up prices for the rest of the world.
3. It looks like it's going to be an extra cold winter
It’s been a cold start to the winter, and that pattern looks set to continue. You may remember, last winter there was terrible flooding, but the actual temperature was pretty mild. There is a high chance this winter could be much colder than recent years.
Due to a weakened polar vortex, cold air that was previously contained in the Arctic is likely to escape to lower climes. For the UK, that means increased likelihood of cold snaps between now and Christmas, more people reaching for the thermostat, increasing their demand and therefore increasing wholesale prices.
Every cloud has a silver lining
Higher wholesale prices mean renewable generators get paid more for their output. With government subsidies for renewables continuing to be cut, higher prices provide some much-needed support for independent renewable generators. Ultimately, this encourages more investment in renewable generation.
Investment in battery storage and demand response technologies are crucial as we transition to a low carbon future. Battery storage means we can store electricity generated by renewables at off-peak times, and then use it during high price peak periods. Demand response technology enables consumers of electricity to reduce their usage during peak periods, which dramatically reduces the requirement for dirty diesel generators.
The recent surges in wholesale prices during peak demand periods improves the investment case for these technologies. So, while higher wholesale prices are not ideal, we do see benefits in the longer-term investment signals they send.
Bulb: Fast down, slow up
Since this time last year, we’ve lowered our prices five times. We followed wholesale prices quickly when they went down, making sure we passed on these savings to our members.
We aim to give you the best possible deal on the price of renewable energy by keeping our costs as low as possible. This means that when the wholesale cost of energy goes up, we cannot absorb the extra costs, but we are committed to bringing prices back down again as soon as wholesale market conditions allow.
The extra cost of Bulb renewable energy to you as a result of this price rise will increase your bill by about £6 per month. We know this is a lot, and hope that market conditions will improve so that we can pass the savings back to you.
We’d love to talk you through this or anything else you might want to chat about.
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