With rising wholesale gas costs in the news, consumers are understandably concerned about the potential impact on their bills. Wholesale energy costs, what you pay for the energy bought to supply your home or business, make up around 40% of your energy bill.
This blog post will explain what makes up wholesale energy costs, how they can affect what you pay for your energy, and what gas prices mean for your electricity bills.
The relationship between energy costs and bills
The energy price cap is the maximum amount energy suppliers in Great Britain (England, Scotland and Wales) can charge domestic consumers for each unit of energy and standing charge if they are on a standard variable tariff, also known as a default tariff. It is set every three months and makes sure that prices for people on a standard variable tariff are fair and that they reflect the cost of energy.
To protect households and businesses from market volatility, energy companies buy gas and electricity ahead of when they need it. This is called ‘hedging’. Hedging and the price cap often cause a delay between price changes in the wholesale market and what consumers pay.
Wholesale energy costs
Suppliers buy energy from electricity generators and gas producers on the wholesale market. Prices on the wholesale market can go up and down quickly and depending on what’s happening globally with fossil fuels and increasingly, renewable fuels. Government’s Clean Power 2030 Action Plan aims to reduce our reliance on unstable fossil fuel markets by investing in clean, homegrown renewable energy.
Demand also affects price. Wholesale prices are generally lower when demand is low and fuel availability is high. They rise when the opposite is true.
Read more: Ofgem
