SSE is increases prices by 9%: http://www.bbc.co.uk/news/business-19347503

According to Faisal Islam, “Wholesale cost of energy bills now £10 a year LESS than four years ago but bills on average £210 more expensive, before today’s hikes.”

Here are some charts which show that:

http://www.consumerfocus.org.uk/files/2011/01/Wholesale-gas-Aug-122.jpg

http://www.consumerfocus.org.uk/files/2011/01/Wholesale-electric-Aug-123.jpg

So what is going on? Have energy companies been investing billions in something?

Greed, obviously. After all, they have management salaries to pay for… 🙄

its called privatisation…

pretty simple – quantitative easing has reduced the value of sterling against other currencies – by about 25% against the dollar over the last 4 or so years.

This, plus a well predicted reduction in domestic supply (as old coal stations and nuclear stations are taken out of service – no new ones were approved under the last government), means that supply is down and demand is up – so prices rise.

The last government knew this was coming but did nothing and we’re paying the price for it now.

Here are some charts which show that:

Interesting that you think it shows that. Here is what I see:

GAS

Wholesale cost comparing first half of 2007 and 2012 has risen by 50%. The consumer bill has risen by roughly the same %age in that time.

Compare the first half of 2010 and 2012 and, in %age terms consumer bills rose by less than wholesale costs.

ELECTRIC

First half 2007 – 2012 Wholesale prices rose about 30% (very roughly). The consumer bill is similar % age.
whilst the first half of 2010 and 2012 its more like 20% on wholesale but close to 10% for consumers…

I’m sure I could spin various other stories, but its about long term averages and forecasts of markets not picking a point in time.

Published Distribution Use of System charges higher
Published Transmission Use of System charges higher
Higher levies associated with social and environmental obligations on residential supplies
Cost recovery of the Feed in Tariff
Wholesale Gas price volatility
Rising costs of Grid System balancing
Currency dynamics

Margin on a domestic supply is low – typically c£50-£70 per year (some years it’s closer to zero or negative)

There is not enough to go round!

means that supply is down and demand is up – so prices rise.

I must be an economic dunderpuss as I’ve never really understood this principle.

So other than greed and taking advantage of people, why do prices rise when demand is high and supply is low?

This can apply to holidays, house prices or energy obviously but is there anything other than taking advantage of the situation to make some extra cash that actually makes this supply vs demand thing raise costs?

Obviously it doesn’t cost any more than normal to produce the product, so what’s the justification?

There is not enough to go round

This is also true. Fukushima implications on global nuclear policies has meant gas generation is on the increase. A significant proportion of LNG goes to Japan. Germany now struggling too.

Increased demand for gas = increased cost. Fortunately the US is benefitting from a shale gas revolution.

why do prices rise when demand is high and supply is low?

It’s rationing through the purse strings. When demand for a produce exceeds supply it has to be rationed.

it doesn’t cost any more than normal to produce the product

It does cost more to produce the product (electricity).
Global Market for gas for example means that an LNG ship leaves port and will dock and unload at the country that is paying the highest price. It is not uncommon for a ships destination to change …

Therefore production cost is volatile. Add to this the other costs for transmission etc (see above) that are all increasing and Mr & Mrs Samuri end up paying more.

Really? Private companies restrict supply by increasing the price? Somehow I’m struggling they to believe they have the comsumers interests at heart.

I’m happy to accept it’s pure greed in which case we should stop calling is supply and demand and call it greed.

The spot wholesale price today tells you little about the price of energy in reality. Most is bought on forward contracts, these have increased. The gaps in forecast and actual demand are topped up shorter term, some with the daily spot price. If consumers were exposed to fluctuations in the spot Market price it would play havok and the big 6 will go for periods of loss and profit through the year to come out with a reasonable single digit margin. When comparisons with the spor price in august and conumers tariffs are made this is really just irresponsible headline grabbing Imho

greed.
everyone passes on their costs and the cost of their growth targets along the chain until the chain stops at the consumer.

Samuri, you’re off on an odd tangent with that last post …

There is not enough to go round!

Use less. Just a thought.

So me and Hora are the only two men left on the planet.

Sperm, for obvious reasons has become rather valuable. There’s a very high demand for it because the ladies love the salty taste, and there’s a limited supply. Hora can after all, only produce about a litre a day and I’m restricted to three gallons a day after my mountain biking accident.

It doesn’t cost us any more to produce it, but we can charge a lot for it. Because people will pay.

One day Hora suffers a terrible and unfortunate auto erotic asphyxiation death and I am now the only man left. I keep producing at the same rate and it certainly costs me nothing extra, but I can now charge four times the price.

Is that a reasonable summation of the energy market?

Samuri, you’re off on an odd tangent with that last post …

wait till you read the one above.

Fair enough!

Yes the only solution to rising prices is reduced consumption or self generation. If you use power during the day Solar may help or a small turbine if it’s windy.

Over here in Oz they have just introduced Carbon Tax, slowly the cent drops and people realise that using less is the way to reduce costs.

A reduction in consumption is the end game as there is not enough energy (let alone clean energy) to go round and with China/India entering the market hard it’s going to run out soon.

Over here in Oz they have just introduced Carbon Tax, slowly the cent drops and people realise that using less is the way to reduce costs.

Seems though, that all the ‘Green Taxes’ added on just keep pushing the production costs of everything higher, and people are using less and less, so then they have to push the prices up to cover the inflated costs of production, so people cut back even more…
N’est pas?

Don’t forget the effect of the ruinous, ridiculous, Feed In Tariffs as well. And then I spotted this…

http://www.bbc.co.uk/news/uk-northern-ireland-19343459

So will there be any action taken against the grasping b’stards of SSE? Will there hell!

There’s an interesting summary on the channel 4 news website at the moment. Interesting if you are trying to find the link to wholesale prices (is there one?!?)

Well… as we sold many of our private energy companys to the French state, we now have a situation where they (The French) are closing down UK generation sources or selling wholesale to french distribution. They in turn sell it back to us at a greatly inflated price.

Take EDFs recent press releases as an example.. they close down power stations in the uk stating falling demand then put up prices stating lack of supply.

Whole thing is a shambles.

grtdkad – Member
Published Distribution Use of System charges higher
Published Transmission Use of System charges higher
Higher levies associated with social and environmental obligations on residential supplies
Cost recovery of the Feed in Tariff
Wholesale Gas price volatility
Rising costs of Grid System balancing
Currency dynamics
Margin on a domestic supply is low – typically c£50-£70 per year (some years it’s closer to zero or negative)

Or in other words the supplier’s profit is about the same as the total charge from the distributor – which pays for the upkeep of the distribution system before they see any profit.

As I recall British Gas were making around 10% return from their half year profits alone the other year (relative to capital employed). Assuming that translates to 20% per annum that’s not too shabby.