Supply Market Indicators
In our regular monthly review of Ofgem’s Supply Market Indicators we focus on October’s release from the energy regulator.
October 2014
The October 2014 SMI from Ofgem reported that:
- They estimate that the average annual dual fuel bill has fallen slightly for the next 12 months remains broadly in line with last month at £1,328 (£1,330)
- Gas bills will be £741 per annum on average whilst electricity bills will be lower at £609
- That wholesale prices have fallen since the start of 2014 with the gas price 17% lower and the electricity price 7% lower
- That wholesale prices will make up around 45% of the average dual fuel bill
- That network costs will be £302 of the average bill over the next 12 months
- That environmental and social obligation costs have again increased this time to £90 or 7% to the average customer bill
- That the Renewables Obligation (RO) for 2015/16 is the root cause of the latest increase
- That supplier operating costs will remain at a forecast level of £175 or 13% of the average dual fuel bill
- That Supplier pre-tax margins (profit) will be £103 or 8% of an annual duel fuel bill over the coming 12 months.
The headlines from the October SMI therefore are:
- Wholesale energy costs DOWN
- Network costs LEVEL
- Environmental and Social costs UP
- Supplier costs UP
- Supplier profit UP
Ofgem’s SMI 2009-2014
Ofgem’s SMI has been reporting since 2009 and the comparative annual results are detailed in the table below.
Unfortunately, prior to 2013 Ofgem failed to separate Network costs and Environmental & social obligation costs despite these being two of the largest and fastest growing areas of expense. However it is possible to see that the increase in the growth of the catch all segment Other direct costs from £291 in 2009 to £399 today.
In contrast, wholesale energy costs have actually fallen over the period however as one would expect this hasn’t been a linear progression and instead has been subject to peaks and troughs.
Supplier operating costs jumped between 2009 and 2010 and maintained their levels through subsequent years only to be subject to a recent jump again in 2014 to £168.
The biggest variance however is reserved for Ofgem’s assumption of supplier profit which according to their calculations has grown from £48 in 2013 to £103 today and up from just £8 in 2009. Suppliers contest this but it is easy to see why Ofgem maintain that it is suppliers keeping costs high for consumers.
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 (Oct) | £/customer/year |
| £1,043 | £1,063 | £1,006 | £1,174 | £1,225 | £1,195 | Average revenue |
| £621 | £588 | £537 | £612 | £628 | £591 | Wholesale costs |
| £291 | £288 | £294 | £354 | £392 | £399 | Other direct costs |
| £276 | £302 | Network costs | ||||
| £109 | £90 | Environmental & social obligation costs | ||||
| £9 | £8 | £7 | £7 | £7 | £7 | Depreciation & amortisation |
| £123 | £152 | £146 | £154 | £157 | £168 | Supplier operating costs |
| £8 | £35 | £30 | £53 | £48 | £103 | Operating profit |