The energy regulator has said that, despite rising wholesale costs, the UK’s major energy suppliers should not be increasing their prices for customers in coming months.
Ofgem explained that wholesale energy costs are most likely set to continue rising into the near future (adding to their 15% rise in the past 12 months). However, this presents no “obvious” reason why suppliers (particularly larger suppliers like the big six) should be raising their prices, since they purchase the energy used by their customers far in advance exactly so that they are protected from price rises.
Ofgem’s chief executive, Dermot Nolan, explained that when, back in 2013-14, plummeting oil prices contributed to falling costs for wholesale energy, most suppliers refrained from dropping the prices of their tariffs. Defending their decision not to cut prices, they cited their long term hedging strategies – they’d bought the energy early on when prices were higher to protect themselves from market volatility.
Nolan said: “The key point energy companies make about about hedging is that if costs are falling, you cannot expect retail bills to fall as quickly because they smooth out the market impact on bills. But it works the other way, too.”
The announcement comes not long after EDF revealed that they would indeed be hiking prices for their electricity from march this year – a decision that Nolan said they would have to justify beyond the citing of rising wholesale costs.
An EDF spokesperson said that the reason behind their decision to rise prices was an increase in other costs that they had to take on. They said: “Our policy of buying electricity ahead of time has protected customers from the more recent volatility in wholesale prices, however non-wholesale energy costs have risen and we have been honest with customers about the future impact on prices, confirming that we are holding off increasing electricity prices until March.”
