Blog: Variable tariff customers set for spring price hikes as wholesale energy prices continue to climb

It looks likely that customers on variable tariffs will see price hikes in the spring, as new analysis shows UK energy values have risen to their highest levels in 18 months, suggesting it might be a great time to switch to a fixed tariff.

Price reporting agency ICIS said UK wholesale energy market prices have continued to climb in Q4 2016, prompted by concerns over gas storage levels and tighter power margins. The ICIS Power Index (IPI) averaged £45.937 per megawatthour (MWh) over Q4 2016, the highest quarterly average in two years. Gas for delivery over the next year averaged 45.018p/th, its highest in 18 months.

British Gas, E.On and Scottish and Southern all promised to freeze their variable standard tariff price over the winter, but made no promises what would happen come the spring.

EDF Energy has already warned customers that its prices will rise in March. In December it announced a 5.2% cut in variable gas prices and that variable electricity prices will be frozen until 1 March, followed by an 8.4% rise.

Meanwhile, Npower has just launched what it calls “the longest tariff on the market”, a new tariff that fixes energy prices until 31 March 2021.

Will rising wholesale prices see other small energy companies go the way of GB Energy, which ceased trading in November, citing “swift and significant increases in energy prices”? Ovo rushed to reassure their customers that they were “in safe hands“. First Utility did the same, saying: “We are a very different business to GB Energy, because we have a highly robust strategy for buying energy. This means our business is safe, secure and protected from the issues that affected GB Energy.” Ovo also announced in the autumn that electricity unit rates on its standard variable tariff would increase by 18% from yesterday (10 January), offset by a £10 decrease in its yearly standard charge. The company cited “a steady increase in wholesale commodity costs for both electricity and gas”.

Zoe Double, head of power at ICIS, warned that next winter is already a concern. “The UK’s electricity margin continues to cause alarm, leading to high short-term prices and encouraging market participants to factor in greater price risk for next winter, she said.

Related content:

Cold snap will test energy suppliers

GB Energy Supply ceases trading – Co-Operative Energy to take on customers

Supplier chiefs want more oversight from Ofgem

IoT for energy: Is there a future for energy suppliers?

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