oil rig in the ocean with a sunset
Thursday 8th of August 2019 | Posted In: Buy and Sell, Buying energy

When the price of electricity goes down, how do unit rates still go up?

For the last few years each renewal we do reminds us of the increase in the cost of electricity, but why are prices increasing?

When considering that the cost of oil has dropped from $74 a barrel (Aug 2018) to $60 a barrel (Aug 2019) and the wholesale electricity price for 12 months’ supply also went down by about 20% (from £61 to £49 per MWh) over the same period. You’d think that unit rates on electricity bills would have followed suit wouldn’t you? Well, although the cost of electricity has decreased since August 2018, the actual wholesale cost makes up only around a third of your unit rates, so customers are still seeing increases of around 10-15% a year in their unit rates. The remaining two-thirds of unit rates are made up of Network costs, Environmental Social Costs, Operating costs alongside supplier costs and margins. Due to the energy industry and its infrastructure constantly changing as well as the drive towards cleaner energy these third-party costs increase year on year which is what brings the unit rates up overall.

Market update

At the start of July low levels of Liquified Natural Gas and an unplanned gas outage in Norway saw gas prices increase, whereas easing tensions between the US and China during trade deals helped electricity prices decrease.

The following week prices increased significantly, causing many suppliers to pull their prices due to continued gas shortages and low wind generation as well as poor coal, carbon and oil markets.

Towards the end of the month, prices appeared to recover due to some expected cargoes of Liquified Natural Gas to ease supply issues and temperatures being above seasonal norms, which reduced heat supplier demand. However, the carbon market remained volatile creating uncertainty going into August…

If you would like to discuss any of the topics mentioned in this blog, please give our contracts team a call on 024 7669 8885.