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Wednesday
11th June 2008
Energy experts warn that price rises of up to 40% may be seen this winter as
major commercial suppliers prepare to align their prices with the wholesale
energy market.
Centrica, parent company of British Gas, and E.ON, owner of Powergen are
both set to raise their prices as the high cost of oil pushes the price of gas
and electricity to levels never seen before in the UK.
With electricity and gas prices prices rising so much, recently reaching
levels of 3 or 4 times that of 10 years ago, one might be forgiven for expecting
prices to fall in the near future. This would be a naive expectation
however, as the factors driving prices up are many, and seem to show no signs of
reversal as yet.
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 We’ve
finished the period of cheap energy
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-Paul Golby, E.ON Chief Executive |
Last Friday crude oil hit $139 per barrel for the first time ever, causing
the Dow Jones to close 3.1% down, its eighth-biggest points drop ever. As
a result, wholesale gas prices - the price that suppliers pay to generators -
finished the day 76% up on the start of the year.
A similar pattern was seen in June 2005, when wholesale gas prices last broke
above retail prices. By the end of 2007, retail prices had risen by a
record 47%. A similar pattern is expected this time, and the first signs
have started to emerge from some of the UK's largest
business electricity and
gas suppliers that prices are on the way up.
On Monday it was announced that British Gas will be raising the price of
their Market Tracker product by 14%. The Market Tracker is a domestic
variable price contract that follows market trends and raises or lowers the
price customers pay based on the wholesale price of energy.
Ann Robinson, director of consumer policy at
uSwitch.com said: "The
British Gas Market Tracker plan tracks wholesale energy prices, so acts like an
early warning system, alerting consumers to the pressures suppliers are under
and the impact this could have on household energy prices."
"Consumers cannot afford to ignore these signs - they need to take action now
to stand any chance of limiting the impact of higher prices." Ms Robinson
advises.
But British Gas are not the only energy giant expecting to raise their prices
in the near future. E.ON chief executive Paul Golby said at the launch of
E.ON's energy manifesto: "We’ve finished the period of cheap energy; wholesale
prices have gone up considerably more than retail prices, so there will be
upward pressure on bills". He continued: "The cost of replacing the ageing
energy infrastructure would be in the region of £50 billion to £100 billion, and
government targets for renewable energy are extremely challenging."
A combination of political and economic factors are currently pushing the
price of oil to unprecedented levels. This in turn affects the price of
gas on the wholesale market, which ripples into the electricity market as well,
as a large amount of electricity is now generated by gas-fired power plants.
An increase in dependence on imported gas is also pushing the price up, as north
sea production dwindles further and further.
OPEC, the oil producers' cartel warned that there are currently no intentions
to increase oil supply further. Shokri Ghanem, a Libyan representative
said: "I think [the oil price] will go higher. That is a trend that will
continue for some time. The easy, cheap oil is over, peak oil is looming."
"Peak oil" is a phrase used to describe the market once production has peaked
and essentially stagnated, leading to higher and higher prices due to such great
demand, and no extra supply.
The industry regulator Ofgem sent out a warning to consumers everywhere.
Mark Wiltshire, a spokesman for Ofgem said: "Recent rises in
gas prices are largely to do with
increases in the cost of oil and coal, which are driving up the price of
wholesale gas in Europe. As our reserves decline, we have to import more of this
expensive European gas".
Businesses who want to protect themselves from unexpected price increases can
do so by entering into a fixed term supply agreement with a supplier of their
choice. This reserves your energy at a set price for the fixed period of
time meaning there can be no unexpected price hikes before the end of your
contract. If you would like to fix your business electricity or gas prices
for a period of 1 to 5 years you can get a
free, no-obligation energy
quote from utilities solutions.
For savings on your Business
Energy see our
Business
Electricity and
Business Gas pages.
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