Business

Energy firms' costs 'hit five-year low'

gas cooker

Wholesale gas and electricity prices in the UK hit a five-year low at the end of 2015, according to latest research by energy market analysts.

The cost of energy on the wholesale market tumbled to £36.76 per megawatt hour on the Power Index, compiled by market information provider ICIS.

The causes were a mild winter and lower global commodity prices, ICIS said.

Pressure is mounting on the UK's big six energy suppliers to cut their prices in line with falling costs.

Amber Rudd, who took over as energy secretary after last year's general election, wrote to the big six soon afterwards to question them about whether their prices were reflecting the wholesale market.

But the energy firms have said they are operating in a highly competitive environment.

'Over the odds'

British Gas cut its gas prices by 5% in August, but the other five big firms did not follow suit.

Northern Ireland's second-largest electricity supplier, SSE Airtricity, announced last week that it was cutting prices by 1.3%.

Which? executive director Richard Lloyd said: "It's extremely disappointing millions of us are still paying way over the odds for our energy. Consumers will rightly ask why their bills haven't been cut dramatically when wholesale costs have dropped.

"The government needs to protect vulnerable customers from being ripped off and make people feel confident about switching supplier."


Analysis: John Moylan, Industry Correspondent

Why have the big six suppliers not cut prices?

The industry insists they have. There is fierce competition for fixed price deals. Customers who switch can save hundreds of pounds.

But according to the energy regulator, Ofgem, 70% of consumers remain on standard variable tariffs which have hardly changed since early last year.

The big six may be holding off on price cuts to compensate for losses they are making in power generation.

They may also be cautious ahead of final decisions on how to fix the energy market due from the Competition and Markets Authority at the end of the month.


Gas oversupply

The research by ICIS said that as well as milder winter temperatures, an oversupply of gas in the wholesale market was also pushing prices lower.

"More gas from around the world in the form of liquefied natural gas (LNG) is expected to come to the UK, as more production capacity comes on-stream in 2016," the firm said.

Zoe Double, head of power at ICIS, added: "Current market prices for delivery two to three years ahead show that participants expect UK wholesale energy prices to remain low."

However, she said electricity prices had fallen less than gas because there was "less spare supply capacity".

The wholesale price for gas fell by 34% over 2015, while the price for electricity fell by 23%.

ICIS said the continuing pressure on wholesale prices gave firms little incentive to invest in further infrastructure.

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