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Why are wholesale costs so necessary? The wholesale market is the place suppliers purchase the power that they provide to clients. Our value to purchase power makes up a big chunk of each buyer’s invoice (sometimes round 40%) which implies when the markets change considerably, our tariffs want to regulate as nicely.
August 2021: Wholesale power costs are going by way of one of many steepest rises we’ve ever seen.
2020 was really a yr like no different – we have written at size about how the pandemic affected power costs, each within the house and throughout the worldwide wholesale market.
Costs dropped sharply over the primary half of final yr in response to a 20% drop in nationwide power demand (primarily from companies closing down), however then started to steadily started to rise once more because the world began to get again on its toes, and so they’ve saved rising ever since.
In February 2021, Ofgem introduced a rise to their power worth cap to regulate for wholesale costs rising. At that time, costs have been 33% larger than they have been 6 months earlier than.
Since then, costs have saved rising dramatically. Proper now, the wholesale value of UK power is over 50% larger than it was in February.
Why have power costs elevated a lot?
World fuel costs have reached a 16 yr highThe worth of carbon credit is 69% larger than it was 6 months in the past
It is largely right down to fuel costs. If the worth of fuel rises, it is pretty simple to see the way it may cost a little extra to warmth your property (in any case, many houses within the UK nonetheless burn the stuff to maintain heat). However that is not all. Within the UK we nonetheless get a reasonably large proportion of our electrical energy from burning fuel too (round 40%), particularly once we want energy at quick discover. With that in thoughts, if fuel costs go up, the worth of electrical energy does as nicely.
That is but one more reason why we’re pushing so exhausting for a renewable revolution. As we generate extra electrical energy from renewable sources just like the wind and the solar (and transfer to affect heating) the UK will develop into much less uncovered to modifications in fuel costs. In the intervening time, nevertheless, when fuel is dear, power will probably be too.
With that in thoughts, let’s dig a bit deeper to work out why fuel costs are rising:
Apart from fuel, different components can contribute to larger costs too…
What does this imply for Octopus’ tariffs?
We’re dedicated to truthful tariffs, the place your costs replicate the price of power, with a small margin on prime for us to cowl our enterprise prices. When there’s sustained modifications within the wholesale value of power, we do have to regulate accordingly, however we have persistently reduce into our margins so we are able to enhance costs as little, and as late as we presumably can.
In fact, we a lot choose to convey costs down. We move financial savings onto clients at any time when we are able to – initially of final yr, when wholesale prices dropped, we have been the primary provider to chop costs. We’ll proceed to observe what’s occurring in wholesale and produce you the very fairest costs we are able to, ceaselessly.