Energy firms 'should cut costs' if market falls continue
Energy firms should cut household prices if the trend of falling wholesale costs continues, a leading market analyst says.
The price power firms pay for gas, known as the wholesale price, hit a new low for 2011 on Friday, while electricity prices sunk to their lowest point of the year two days earlier due to the turmoil in world markets (see the Energy price slump MSE News story).
Key Points
Wholesale prices falling
Could mean future household price drops
But others predict future hikes
That news came on the same day Eon become the fourth of the big six UK energy firms to announce a rise in consumer prices due to what had been rising wholesale costs for much of the year.
British Gas, Scottish & Southern Energy (SSE) and Scottish Power have all either raised or announced a future rise in costs, with EDF and Npower expected to follow.
SSE has also made a commitment not to implement another increase before August 2012, perhaps indicating a softening in prices.
Andrew Horstead, from energy analyst firm Utilyx, says if the current trend continues, the "logical conclusion" is firms must lower household costs.
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He points out that energy firms buy power in advance so the recent falls are irrelevant to current prices, though they may mean cuts in a few months.
However, other experts expect price rises so the view is not universal.
We rounded up the views of four leading energy commentators to get their predictions of prices for the year ahead to help you plan what to do about your bills. Here they are below:
Andrew Horstead, research manager at Utilyx:
"Wholesale prices have risen over the past 6-9 months but plateaued in April/May and that trend has generally continued since, though gas prices are down 15% since mid-June as demand remains weak and supplies healthy.
"Developments in the eurozone and across the Atlantic in the US in recent weeks look like undermining the economic recovery. If prices continue to drop it is going to be a difficult PR pill for energy firms to swallow if the world moves into a continued economic slowdown.
"Barclays Capital lowered its oil demand forecast this week. Oil hit $104 on Friday, down over 10% on the previous week, and we are seeing a similar response to UK gas and power prices. With the economic outlook looking far from rosy, we would expect commodity prices to remain under pressure.
"A sustained move lower would make it difficult to argue for energy costs to rise for households. If the economists are correct and this trend continues over the next six months then price reductions are the logical consequence."
Mark Todd, director of price comparison site Energyhelpline.com:
"There’s a chance of price drops next year but also rises, it is just too early to tell.
"The only thing we can guarantee this year is that we will see big price rises and over the long term bills will rise. By 2020, bills are likely to be £2,000 a year or more [currently, they're around £1,200]."
Phil Paterson-Fox, from price comparison site Gocompare.com:
"With energy suppliers continuing to invest in cleaner and greener ways to provide gas and electricity, and with wholesale energy costs fluctuating, it's unlikely British consumers will see any significant price reductions during the next 12 months.
"But while energy companies, like all businesses, are affected by things beyond their control that could justify price increases, these should be justifiable and reasonable. Ofgem, the regulator, needs to investigate whether these price hikes are always fair in order to address the growing concerns of cash-strapped consumers.
"Price increases looks set to continue, so people need to know how they can get the best possible deal on their gas and electricity."
Scott Byrom, from price comparison site Moneysupermarket.com:
"Ultimately, energy prices are going to continue to increase. With greater pressures from government on reducing carbon emissions, suppliers have to acquire energy from costly renewable sources such as wind, and overall, the UK will have to import more gas from the Continent.
"It's inevitable UK consumers will be paying more for their household energy in the future. Looking specifically at the next 12-months, this doesn't change.
"The "cheaper" energy bought by energy suppliers in 2009/2010 is running out and is being replaced with energy that is costing approximately 30% to 40% more. As a result, while it's likely the recent price changes will be enough to see us through the winter, it's possible we may see further price hikes in early 2012 if current market conditions continue.
"Due to the inevitable upward movement of energy prices, consumers can't go wrong with locking in to a fixed tariff to protect themselves against future hikes. Additionally, consumers need to do everything they can to reduce their usage and ensure they are as energy efficient as possible."
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