Winter energy price watch: the wholesale market and your bill

 
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Welcome to the winter installment of Bulb’s Energy Price Watch, where we update you on what is going on in the wholesale energy market and how this affects your energy bill. Wholesale energy costs typically make up around 40% of your bill, so it’s important we keep you up to date on what’s going on. We do these updates every 3 months.

Wholesale costs have gone up over the last few months and especially in the last week. Because we buy our energy 3 months in advance, the recent sharp jump won’t affect our members for now. There is a chance we will need to raise our prices in the new year. If we do, we will give our members 60 days notice. And we don't charge exit fees, so our members can leave at any point at zero cost.
 

Wholesale costs have gone up since September


The highlights:

  • Wholesale electricity and gas costs are 20% higher than they were in September and jumped sharply in the last week
  • Because we buy our energy 3 months in advance, last week’s sharp jump won’t affect members for now
  • However, given wholesale costs have generally been increasing over the last few months, there’s a chance we may have to increase prices in March 2018. If this happens, we’ll give our members 60 days notice

The detail:

GAS

Two independent incidents in the last week pushed the wholesale cost of gas to the highest point in 4 years:

 1. The UK’s most important oil and gas pipeline - the Forties pipeline - has had to be closed for repairs

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The pipeline was shut on 11th December after a crack was discovered. This pipeline delivers almost 40% of UK North Sea oil and gas production. Having to shut it down, even for a short period of time, causes significant increases in gas prices.

 

2. There was an explosion on 12th December at a natural gas hub in Austria - the Baumgarten compressor station

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Baumgarten is the main point of entry for gas to Europe from Russia. The incident caused such a problem in Europe that Italy declared a state of emergency. Gas prices rose significantly after the explosion. The site is now back online, which has eased supply worries and lowered prices to where they were before the explosion.

Before these events, gas prices had already been rising steadily from September onwards. In the past few months, the UK has seen fewer imports of Liquefied Natural Gas (LNG) than expected. There is much higher demand in Asia for LNG due to China’s push away from coal. Shipments of LNG are heading East. And, on top of that, the winter has been colder than expected. Earlier this month, we saw the most significant snowfall event since 2013 in many parts of the UK.

 

electricity

Electricity prices are now around 20% higher than they were in September. This is largely driven by the change in gas price. The UK is still heavily dependent on gas-fired power plants for electricity generation. So, higher gas prices mean higher electricity prices too.
 

How does this affect your bill?

We buy our energy 3 months in advance. This means we’re protected from dramatic changes in the energy markets in the near term as we've already bought our energy.

 
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Prices may remain high if the Forties Pipeline doesn’t return soon and we continue to have a colder-than-expected winter. Given this, there is a chance that we will have to increase our prices next year. If we do, we’ll always give you 60 days notice. And at Bulb we don't do exit fees, so you can leave us at any time with zero cost.

Why do wholesale energy prices affect Bulb?

While we only ever buy 100% renewable electricity and 10% green gas, there is only one price for gas or electricity in the UK. There aren’t separate markets for green and non-green energy sources. The price is determined by what people will pay for energy at a particular time, regardless of the source. So, when the cost of electricity produced by burning gas goes up, so does the cost of electricity from hydro, biomethane, and all other green sources.
 


As ever, we’d love to hear any thoughts or questions you have on this. Reach us at hello@bulb.co.uk or drop in on the Bulb Community.

amit