Electricity and gas commodity costs have declined throughout 2023 and are around 15% of prices at the peak of the energy crisis in August 2022.
The fundamental underpinning the energy crisis was a fear that Europe would run out of gas due to the massive reduction in Russian supplies. As gas accounts for about half Europe’s electricity generation, we would have been without electricity too. Gas supplies remained strong leading to declining prices.
The key question is where will prices go in 2024? Commodity prices are expected to remain at around double pre-pandemic levels for the next few years, suggesting that they don’t have much further to fall. While generally reassured, the market reacts to any suggested threat of losses of supply. The current mild and windy weather reduces gas demand and boosts renewable generation. However, a prolonged cold snap would send prices higher.
Commodity costs, currently around 8ppkW for electricity and 3ppkW for gas, are only a proportion of customer bills. Non-commodity costs and supplier margins account for the majority. The increase in standing charges is understandably causing concern with some pubs seeing those costs increasing by over £30 per day, or £10,000 a year. The fact that some supplier’s charges are rising faster suggests that changes are about internal pricing policy as much as non-commodity costs.
The justifiable concerns over supplier pricing and margins are unlikely to be on Ofgem’s priorities. Their recent decision for a £16 consumer levy to help address the £3bn in bad debts suggests they are prioritising supplier welfare despite the massive profits announced this year.
Hopefully Ofgem’s review of the non-domestic market along with RECCo’s review of change of tenancy practices will bring positive improvements to the market. Pubs are often some of the worst affected by poor supplier practice.