Winter energy price watch: the wholesale market and your bill

 
Bulb's finance team get together to discuss the wholesale market
 

We last updated you in September, when we raised our prices as a result of increased wholesale energy costs. While we held off for as long as we could, sustained rises in wholesale costs meant we were forced to pass those increases on to members. Since September, things have begun to settle – wholesale costs are now 9% lower than they were. If this trend continues, we’ll be able to drop our prices in 2019. Things are still volatile so we’ll keep an eye on things and update members in the New Year.

Wholesale energy costs have fallen

Wholesale energy costs have fallen since September 2018, breaking the trend we saw consistently through most of the year. These costs are now 9% lower than they were in September but are still 28% higher than this time last year. If wholesale energy prices continue to fall, we will drop our prices again in the new year.

 
dec-wholesale-update-chart-showing-bulb-energy-bill-vs-wholesale-costs.png
 

What caused wholesale costs to decrease?

The headlines:

  • Both wholesale electricity and gas costs are 9% lower than they were in September 2018

  • A mild October and November in Europe meant the UK drew less heavily on gas stores than expected

  • A mild start to winter in China meant more shipments of Liquified Natural Gas (LNG) came to Europe

  • Gas storage levels have caught up. We will start the New Year in a better position than this time last year, pushing prices down

The detail:

Gas

When we last updated you in September, gas storage levels were lower than you’d hope for this time of year. This meant we started winter in a precarious position – a cold start would’ve forced us to use stored gas, depleting supplies for the rest of the season. Overall, the weather was milder than expected in October and November, which meant less demand for gas in storage.

Added to this, Asia has also experienced a mild start to winter. This has meant lower demand for gas from China, one of the biggest importers of Liquified Natural Gas (LNG). Excess shipments of LNG have come to Europe instead.

 
The FT tweets on warmer weather depressing seasonal demand for gas in Asia

The FT tweets on warmer weather depressing seasonal demand for gas in Asia

 

Compared to last year, Europe has received around five times more shipments of LNG. As a result, the wholesale cost of gas has fallen.

So far, December has not been particularly cold. The winter holidays are typically a period of low demand as businesses (big energy consumers) shut down. This means we’re heading into the New Year with more gas in storage than we had at the same point last year.

Electricity

Electricity wholesale prices are now also around 9% lower than they were in September 2018. This is mainly driven by the change in gas prices. The UK is still heavily dependent on gas-fired power plants for electricity generation. So, lower gas prices mean lower electricity prices too.

While we’ve already cautioned against predicting the weather, it does look like the next few weeks will be mild, wet and windy. If that turns out to be the case, we’ll see more energy produced from wind turbines, leading to lower wholesale electricity prices.


How does this affect your bill?

At Bulb, the price you pay for energy reflects the true cost of supplying energy. This means that when wholesale costs fall, so do our rates. If prices continue to fall, we'll be able to pass that decrease on to you, our members. We’ll update you in 2019.

Why do wholesale prices affect Bulb?

We always buy 100% renewable electricity and 10% green gas. However, renewable generators will sell to whoever is prepared to pay for their energy (and rightly so!). This means that when fossil fuel prices go up, renewable prices go up too.


As always, 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