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April 2015 SMI from Ofgem

April 2015 Ofgem Supply Market Indicators (SMI)ofgem strapline

In our regular monthly review of Ofgem’s Supply Market Indicators we focus on April 2015’s release from the energy regulator.

Wholesale Prices

  • Ofgem predicted that wholesale prices will make up 37% of the average electricity bill and 46% of the average gas bill

These levels compare favourably with Ofgem’s prediction of 38% and 51% respectively in April 2014’s SMI, but why has the cost of the energy fallen to such low levels?

Ofgem explain:

Network Costs

  • For gas customers, network costs are now forecast to make up 21% of the overall bill and for electricity customers 24%

Environmental & Social Obligation Costs

  • Ofgem also reported that environmental and social obligation costs (green levies and taxes) are now forecast to make up 3% of the average gas bill and an astonishing 12% of the average electricity bill.

Supplier Operating Costs

  • Ofgem forecast that supplier operating costs for gas customers will be 14%, whilst for electricity customers they are forecast to be 13%.

Supplier Pre Tax Margins

  • Ofgem’s interpretation of supplier ‘Pre Tax Profit Margin’ is 12% for gas and 9% for electricity.

Ofgem’s SMI 2009-2015

Ofgem’s SMI has been reporting since 2009.

Costs not under the control of the supplier

  • Have increased from 26% to 49% for electricity contracts but fallen from 30% to 29% for gas contracts
  • In addition Ofgem’s SMI has revealed that over the period 2009 to 2015 wholesale costs had reduced as a proportion of total costs from 60% to 46% whilst electricity has seen a fall from 57% to just 37% today

Supplier costs & Profit

  • Ofgem’s forecasts of supplier operating costs have revealed that those for electricity contracts have remained stable at 13% over the period whilst those for gas customers have increased from 10% to 14%,
  • Meanwhile Ofgem’s estimation of profit on gas contracts has jumped from a loss in 2009 to 12% today whereas for electricity contracts the profit level is reported to have increased from 2% to 9% today.

Overall contract costs

  • Ofgem’s base data suggests that the overall cost of the average gas contract has decreased by 1% over the period but has increased by 1% for electricity contracts

Where the money goes

Ofgem’s SMI tell us that:

The Government

Takes 8% of the total cost of a gas contract in levies and taxes but an astonishing 17% of an electricity contract as the cost of subsidising renewable energy hangs heavily on consumers.

The Generators

Take 46% of the total cost of gas contracts in wholesale expenses but just 37% for electricity contracts.

The Networks

Take 21% of the average gas contract in order to transport the commodity to its destination and 24% of the overall cost of electricity.

The Suppliers

Take 26% of the cost of a gas contract to cover their operational, metering and service expenses as well as their profit margin compared to 22% for electricity contracts.