Understanding trends in energy prices

In Britain’s energy market, suppliers compete on price and service to win customers. In setting their prices, suppliers will seek to cover their costs and to make a profit. They face pressure to keep their prices and costs down, or else risk losing customers to their rivals.

With the exception of updating the price cap protecting prepayment customers (effective from April 2017), Ofgem does not have a role in setting energy prices, nor do we regulate suppliers’ profits. We cannot predict what prices companies will set and when prices will change – these are decisions taken by the suppliers themselves.

We do have a role to provide impartial and authoritative data about the energy market. As part of this, we publish information about the prices that households pay for their energy, the profits suppliers make and the trends in the industry costs that suppliers face. This helps to improve transparency around trends in prices, and what may be driving them.

We are also working to facilitate a more competitive, dynamic energy market, with more engaged consumers. Over time, we expect the changes we make to the retail markets to increase the competitive pressure that suppliers face, and so help to keep energy prices down. 

The latest trends in suppliers’ prices and profits 

In the charts below you can view recent trends in prices for domestic customers split by tariff type and payment method, and trends in suppliers’ domestic pre-tax profit margins. Select the 'more information' tab in the chart for a summary of the latest trends and details of the methodology used.

Chart

Source: Energylinx.

Information correct as of: August 2017

This chart shows trends in domestic energy bills by tariff offered by the six large suppliers and other suppliers. It compares their average standard variable tariffs with the cheapest tariffs available in the market (including white label tariffs). Figures are based on a typical domestic dual fuel customer paying by direct debit. 

This information should not be used as a price comparison tool. To find out about accredited price comparison sites, see Compare gas and electricity tariffs.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Retail price comparison by company and tariff type: Domestic (GB)

DateAverage standard variable tariff (Six large suppliers)Average standard variable tariff (Other suppliers)Cheapest tariff (Six large suppliers)Cheapest tariff (All suppliers)Cheapest tariff (Basket)
28/01/20121020.161026.33915.27906.56947.56
28/02/20121000.761019.41886.18878.10930.29
28/03/2012997.251019.41886.18878.10936.54
28/04/2012997.251019.35895.69878.10937.68
28/05/2012997.251019.35895.69878.10929.78
28/06/2012997.251036.16895.69895.69945.53
28/07/2012997.251034.16895.69875.93928.99
28/08/2012997.251032.02899.10875.93924.85
28/09/2012997.251019.84901.47875.93931.04
28/10/20121009.001022.51906.17893.85956.00
28/11/20121030.781046.91958.21909.59997.71
28/12/20121061.801089.65990.70909.59994.59
28/01/20131074.421089.65957.18909.59990.81
28/02/20131074.421103.04957.18909.59994.56
28/03/20131074.421103.04966.54909.59995.50
28/04/20131074.421115.23966.54909.59988.37
28/05/20131074.431115.23966.54962.43997.77
28/06/20131074.431115.23966.54769.95967.26
28/07/20131074.451115.23984.68769.95974.82
28/08/20131074.451115.23971.77769.95988.47
28/09/20131074.451115.23971.77769.95979.55
28/10/20131074.451129.021011.80769.95995.67
28/11/20131105.941133.08993.40769.95992.26
28/12/20131138.951133.081033.47769.95997.00
28/01/20141145.841134.251033.47975.211013.73
28/02/20141134.091139.371033.97966.341014.19
28/03/20141128.101136.041024.79964.311016.25
28/04/20141128.101139.051000.38946.42995.26
28/05/20141128.101139.051000.38944.55995.13
28/06/20141128.101139.051000.38944.55992.88
28/07/20141128.101142.671000.38944.95976.39
28/08/20141128.101140.961000.38943.43978.98
28/09/20141128.101171.97960.90942.27972.34
28/10/20141128.101145.38953.40931.02960.15
28/11/20141128.101145.38921.88914.51947.94
28/12/20141128.101144.09916.21906.14929.69
28/01/20151124.331144.09875.40871.26895.39
28/02/20151106.651110.84839.28839.28881.39
28/03/20151106.651088.31836.99836.99892.38
28/04/20151106.651075.32834.57834.57878.56
28/05/20151102.281073.26835.19830.56877.12
28/06/20151102.281073.26835.71830.56871.21
28/07/20151102.281066.77863.85830.56867.88
28/08/20151098.031066.77876.03830.56868.79
28/09/20151098.031054.98876.03830.56858.62
28/10/20151098.031050.12803.00793.93823.00
28/11/20151098.031040.70805.40787.05810.84
28/12/20151098.031039.03850.52787.05803.86
28/01/20161098.031035.48769.69765.00785.04
28/02/20161092.691020.06738.38738.38755.65
28/03/20161071.441013.00727.70727.70756.05
28/04/20161065.97978.55723.91723.91751.58
28/05/20161065.97976.04723.23723.23742.71
28/06/20161065.97984.02723.23723.23751.36
28/07/20161065.97988.70779.39758.31779.72
28/08/20161065.97983.86801.37769.65789.25
28/09/20161065.97983.89754.64744.30777.00
28/10/20161065.97994.93803.54741.92786.41
28/11/20161065.971012.84897.18790.02859.23
28/12/20161065.971019.72951.51790.02872.16
28/01/20171061.061020.10951.51833.71881.11
28/02/20171061.061034.48938.01833.71876.52
28/03/20171086.311038.66936.81833.71875.30
28/04/20171129.071055.29938.20880.42889.92
28/05/20171129.071067.35935.96849.57880.41
28/06/20171142.101046.86938.10849.74866.28
28/07/20171142.101051.13848.73843.43856.28

More information

At-a-glance summary

From the start of 2014 until early 2016, the price difference between the average standard variable tariff and the cheapest tariff available in the market increased significantly. This is because the price of the cheapest tariffs fell at a much faster rate than that of the average standard variable tariff. The differential peaked in February 2016 at £350. Since then, both the cheapest tariff in the market and the average SVT have increased, driven primarily by increases in wholesale prices.                                                            

The cheapest tariff in the market and the cheapest offered by the six large suppliers have increased by around 14% and 15% respectively between February 2016 and July 2017.

The average price of SVTs offered by the six large suppliers increased from March to July 2017, reaching £1,142. These SVT increases were the first for most of these suppliers since the end of 2013. The differential between the average price of the SVT offered by the six large suppliers and the cheapest tariff in the market reached a two-year low of around £230 in February 2017, but has shown an increasing trend since then and reached £300 in July, mainly as a result of the increase in the price of SVTs.

For more details on the changes to SVT prices, please go to our chart Average tariff prices by supplier: Standard variable vs cheapest available tariffs (GB).

The differential between the basket of cheapest tariffs and the average standard variable tariff for the six large suppliers stood at around £285 in July 2017, an increase of 4% over the previous month.

Relevance and further information

Tariff differentials reflect pricing in different market segments, as well as how much other suppliers are able to compete on price with the six large suppliers.

Methodology

We calculate the annual bill values associated with the different payment methods based on a typical domestic consumer who uses a ‘medium’ amount of energy each year. These values are currently 12,500kWh/year for gas and 3,100kWh/year for electricity (profile class 1). The chart includes collective switching tariffs from Q1 2016. All tariffs shown in the chart are for a dual fuel, direct debit customer.

Dual fuel refers to a situation where a customer takes gas and electricity from the same supplier.

A standard variable tariff refers to a supply contract which is for a period of an indefinite length and which does not contain a fixed term period that applies to any of the terms and conditions. It’s an energy supplier’s basic offer. If a customer does not choose a specific energy plan, for example after their fixed tariff ends, they will be moved on a standard variable tariff until they have chosen a new one. A customer can also make an active choice to select a standard variable tariff.

Tariffs with limited availability depending on customer features (for example, tariffs which are only available to new customers, also known as ‘acquisition’ tariffs, or tariffs restricted to certain regions) are excluded from the calculation to make sure that all tariffs considered are generally available to all customers across GB.

Tariffs available with white label suppliers are included in the calculation of the cheapest tariffs. White label suppliers are organisations without supply licenses that partner with an active licensed supplier to offer gas and electricity using their own brand.

To calculate the average of the cheapest tariffs from the ten cheapest suppliers we took the cheapest tariff offered by each supplier in the market (i.e. one tariff per supplier) and then ranked the tariffs in order of price. We then took the simple average of the ten cheapest tariffs in this list. This method is to ensure a cross section of suppliers is included in the calculation.

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Chart

Source: Energylinx.

Information correct as of: August 2017

This chart compares the cheapest available tariffs offered by the six large suppliers with the cheapest tariff available in the market by payment method (direct debit, standard credit and prepayment). Figures are based on a typical domestic dual fuel customer.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Cheapest tariffs by payment method: Typical domestic dual fuel customer (GB)

DateLarge six suppliers (direct debit)Large six suppliers (standard credit)Large six suppliers (prepayment)Market (direct debit)Market (standard credit)Market (prepayment)
28/01/2012915.27976.71021.54906.56971.04969.61
28/02/2012886.18976.71021.54878.1971.04969.61
28/03/2012886.18976.71021.54878.1971.04969.61
28/04/2012895.69953.41021.54878.1953.4969.24
28/05/2012895.69953.41021.54878.1890.12969.24
28/06/2012895.69953.41021.54895.69953.41017.42
28/07/2012895.69953.41021.54875.93953.41017.42
28/08/2012899.1957.031021.54875.93957.031017.42
28/09/2012901.471020.711021.54875.93988.141017.42
28/10/2012906.171020.711069.39893.85988.141019.3
28/11/2012958.211020.711069.39909.59979.351045.64
28/12/2012990.71071.381133.19909.59979.351045.64
28/01/2013957.181037.21133.19909.59979.351045.64
28/02/2013957.181037.21133.19909.591037.21045.64
28/03/2013966.541046.571133.19909.591046.571045.64
28/04/2013966.541046.571133.19909.591046.571045.64
28/05/2013966.541046.571133.19962.43996.91045.64
28/06/2013966.541046.571133.19769.95996.91045.64
28/07/2013984.681075.511133.19769.95996.91045.64
28/08/2013971.771051.791133.19769.951051.791045.64
28/09/2013971.771051.791133.19769.951051.791045.64
28/10/20131011.81079.911133.19769.951070.991093.35
28/11/2013993.41058.151150.97769.951058.151093.35
28/12/20131033.471101.651178.61769.951101.651093.35
28/01/20141033.471101.651178.61975.211101.651172.77
28/02/20141033.971108.11178.61966.341108.11172.77
28/03/20141024.791117.271178.61964.311117.271171.39
28/04/20141000.381069.951178.61946.421069.951171.39
28/05/20141000.381069.951178.61944.551069.951171.39
28/06/20141000.381069.951170.86944.551069.951162.4
28/07/20141000.381069.951170.86944.951029.051162.4
28/08/20141000.381069.951170.86943.431038.881154.43
28/09/2014960.91030.951170.86942.271030.951154.43
28/10/2014953.41046.451170.86931.021024.451154.43
28/11/2014921.881003.791170.86914.511003.791154.43
28/12/2014916.211003.791170.86906.141003.791151.22
28/01/2015875.4945.461148.99871.26945.461148.99
28/02/2015839.28955.071148.90839.28950.351148.90
28/03/2015836.99907.241148.99836.99907.241116.99
28/04/2015834.57977.561141.64834.57950.631116.99
28/05/2015835.19905.441141.64830.56905.441116.99
28/06/2015835.71981.781122.97830.56940.901116.99
28/07/2015863.85981.781122.97830.56939.851116.99
28/08/2015876.03977.321128.54830.56940.271116.99
28/09/2015876.03963.771128.54830.56907.261100.94
28/10/2015803.00873.251128.54793.93844.041100.94
28/11/2015805.40950.751128.54787.05844.041055.61
28/12/2015850.52950.751102.20787.05844.041055.61
28/01/2016769.69839.941102.20765.00839.941055.61
28/02/2016738.38808.631092.26738.38808.631054.20
28/03/2016727.70797.761070.37727.70797.761051.22
28/04/2016723.93793.481070.37723.91793.481030.27
28/05/2016723.23877.121037.31723.23877.121017.61
28/06/2016723.23847.451037.31723.23847.45985.97
28/07/2016779.39904.971037.31758.31871.54985.97
28/08/2016801.37941.421043.54769.65871.54985.97
28/09/2016754.64839.151043.54744.30839.15985.97
28/10/2016803.54967.131043.54741.92829.42985.97
28/11/2016897.181002.631035.64790.02907.75985.97
28/12/2016951.511031.571035.64790.02923.48985.97
28/01/2017951.511031.571035.64833.71951.58985.97
28/02/2017938.011007.571032.36833.71943.99985.97
28/03/2017936.811031.321035.64833.71964.36985.97
28/04/2017938.201013.781010.42880.42962.45999.73
28/05/2017935.96993.811010.42849.57938.80992.83
28/06/2017938.101032.611018.00849.74937.19992.77
28/07/2017848.73928.761010.40843.43928.76992.77

More information

At-a-glance summary

Across the different payment methods direct debit customers are offered the lowest cheapest tariffs, followed by standard credit customers and then those using prepayment meters. The gap between the cheapest tariff on standard credit and direct debit was relatively stable from 2016 to the first half of 2017 at around £90-£100.

The gap between the cheapest prepayment and direct debit tariff peaked at around £320 in March 2016. It then fell steadily to a low of around £120 in April 2017, but has since increased to around £150 in July 2017. This was due to a combination of large movements in the price of the cheapest direct debit tariffs, more recently downwards, and a relatively more stable trend in the price of the cheapest prepayment tariffs. 

Please note that a cap was introduced on prepayment tariffs on 1 April, limiting the amount that suppliers can charge their prepayment customers. For more information on the impact of the prepayment cap, please see Prepayment and direct debit prices since January 2016 (GB).

Relevance and further information

This indicator helps us understand pricing by payment methods, as well as how much other suppliers are able to compete with the six large suppliers for each method.

Methodology

We calculate the annual bill values associated with the different payment methods based on a typical domestic consumer who uses a ‘medium’ amount of energy each year. These values are currently 12,500kWh/year for gas and 3,100kWh/year for electricity (profile class 1). The chart includes collective switching tariffs from Q1 2016.

All tariffs shown in the chart are for a dual fuel customer. Dual fuel refers to a situation where a customer takes gas and electricity from the same supplier.

Tariffs with limited availability depending on customer features (for example, tariffs which are only available to new customers, also known as ‘acquisition’ tariffs, or tariffs restricted to certain regions) are excluded from the calculation to make sure that all tariffs considered are generally available to all customers across GB.

Tariffs available with white label suppliers are included in the calculation of the cheapest tariff. White label suppliers are organisations without supply licenses that partner with an active licensed supplier to offer gas and electricity using their own brand.

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Chart

Source: Companies’ consolidated segmental statements.

Information correct as of: August 2017

This chart shows the combined gas and electricity pre-tax domestic supply margins of the six large suppliers. It is based on information reported by the large suppliers in their annual Consolidated Segmental Statements.

We update this chart on an annual basis. Click the ‘more information’ tab above for a summary of the key figures, details of how to interpret the figures and for information on our methodology.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Pre-tax domestic supply margins of large suppliers, combined gas and electricity

CentricaE.ONEDFnpowerScottishPowerSSEAggregate
20097.59%-2.62%-7.50%-6.93%1.72%2.31%0.89%
20108.88%0.48%-3.87%-4.66%-0.17%5.95%3.04%
20116.86%1.98%-4.84%-1.81%-0.43%5.77%2.80%
20126.64%2.26%-3.04%3.61%4.51%6.36%4.25%
20136.14%4.01%-2.76%3.41%4.77%3.91%3.94%
20145.30%5.06%-0.24%2.65%5.79%6.04%4.46%
20157.56%4.52%-0.69%-6.78%5.67%6.25%4.15%
20167.18%6.95%-0.87%-6.26%5.20%6.95%4.48%

More information

Pre-tax supply margins of the largest suppliers: At-a-glance summary

  • Between 2009 and 2015, the average combined gas and electricity pre-tax domestic supply margin across the six large suppliers grew from around 1% to around 4%, with significant differences between the suppliers’ margins.
     
  • Between 2015 and 2016, profits earned by the six large suppliers continued to vary substantially and showed an increase in the average combined gas and electricity pre-tax domestic supply margin from 4.1% to 4.5%. E.ON reported an increase in its domestic margins from 4.5% to 7.0%. SSE also showed a slight year-on-year increase from 6.2% to 6.9%. Similarly, npower reported higher domestic margins year-on-year, despite making the biggest loss (-6.3%). Centrica earned the highest domestic margins amongst the group (7.2%) despite reporting a slight decrease year-on-year. EDF and ScottishPower also showed a similar decreasing trend.    

Relevance and further information

This chart helps us understand trends in profits in the domestic supply market and how they differ between suppliers.

Methodology

The supply margins shown in this chart are the ratio between a company’s Earnings Before Interest and Taxes (EBIT) - the ‘pre-tax margin’ - and its total revenues from supplying gas and electricity.

A supplier’s pre-tax margin is calculated by subtracting from a company’s total revenue its total direct costs, total indirect costs (such as operating costs), depreciation and amortisation for supplying energy.

Figures are calculated using information from companies’ annual Consolidated Segmental Statements. They relate to the suppliers’ financial years. Five of the companies (British Gas, EDF, E.ON, npower and ScottishPower) have financial years ending in December, whereas SSE’s financial year runs from April to March. 

The data in this chart may differ from the data that can be found in the company’s externally-published Consolidated Segmental Statements. This is because we have made some adjustments to the way in which exceptional items are reported among suppliers to improve comparability.

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You can find further information on trends in prices and profits in our reports on the retail and wholesale energy markets, and on our page Understanding the profits of the large energy suppliers

The latest trends in suppliers’ costs

To provide insight into the most recent developments in the costs suppliers face, we publish a Supplier Cost Index.

The index tracks ongoing trends in wholesale costs, network costs and the charges to suppliers associated with government programmes that are designed to, for example, help deliver low carbon electricity and energy efficient homes, and provide direct financial support to the fuel poor.

Note that while the index gives insight into current and future cost pressures, it is neither able nor intended to predict what prices suppliers will set or when these will change. The costs that individual suppliers incur in supplying their customers may vary significantly from the index. For example, while the index reflects the level of wholesale prices in the month prior to the update, some companies may buy energy for their customers over an extended period of time to smooth their costs.

Information on suppliers’ realised costs is available in the financial statements published by the six large energy suppliers. See Understanding the profits of the large energy suppliers.

Supplier Cost Index 

Select a chart for our estimates of the latest trends in the cost index, and what is behind these. 

Chart

Javascript is required to render chart Supplier Cost Index by fuel type (GB).

Source: Ofgem analysis.

Information correct as of: 1 August 2017

The Supplier Cost Index tracks ongoing trends in wholesale costs, network costs and the charges to suppliers associated with government programmes.

At-a-glance summary

  • The Supplier Cost Index (dual fuel) was broadly flat between 1 May and 1 August 2017. This followed the 6% drop in the previous quarter. There was an increase in expected electricity costs offset by a reduction for gas, resulting in a increase of 0.9% for dual fuel.
  • The overall decline in the Index since the start of 2017 follows a steep increase in the second half of 2016 (a pattern driven primarily by sharp movements in wholesale prices). This means that the Index in August 2017 is currently 1.2% above its level in August 2016.
  • The period between January 2015 (the current start of index) and April 2016 saw a period of falling costs, with much larger reductions for gas than electricity. As a result, while the overall dual fuel index is now 3.5% below its level at the start of 2015, the electricity index is now around 7.9% higher, and the gas index around 14.1% lower.

We update this chart on a quarterly basis. Click the ‘more information’ tab above for a description of how the index is calculated and which costs are included.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Supplier Cost Index by fuel type (GB)

Expected supply costs for the next 12 months (Jan-15 = 100)Dual FuelElectricityGas
Jan-15100.0100.0100.0
Feb-1593.095.490.7
Mar-1596.898.095.7
Apr-1595.396.494.2
May-1595.096.693.4
Jun-1594.096.491.8
Jul-1593.696.590.9
Aug-1592.896.489.5
Sep-1590.795.586.2
Oct-1590.596.085.4
Nov-1589.195.383.3
Dec-1586.794.779.3
Jan-1685.194.276.6
Feb-1681.891.972.3
Mar-1681.492.371.4
Apr-1682.493.771.8
May-1683.294.472.8
Jun-1685.896.575.9
Jul-1691.1100.982.0
Aug-1695.4104.686.8
Sep-1692.9103.383.2
Oct-1692.5104.281.6
Nov-16104.1118.790.5
Dec-16104.7118.791.7
Jan-1798.5108.289.5
Feb-17101.9109.694.8
Mar-17100.1107.593.1
Apr-1796.3104.888.3
May-1795.7104.587.5
Jun-1795.6105.386.6
Jul-1796.2106.986.2
Aug-1796.5107.985.9

More information

Methodology

  • We calculate the Supplier Cost Index by estimating trends in network charges, wholesale prices and the charges to suppliers associated with government programmes (note that in some cases, these charges only apply to large and medium-sized suppliers). 
  • These estimates are then combined with information on the relative scale of each of these categories of cost to calculate the trend in the overall Supplier Cost Index. The weights given to each category of costs for the period January-December 2016 are as follows: wholesale electricity - 24.5%, wholesale gas - 28.0%, networks electricity - 18.8%, networks gas - 17.4%, government obligations electricity - 10.1% , government obligations gas - 1.2%. 
  • The index reflects estimated expected annual costs, covering the 12 months from the time of each update, based on the best information available at the time. So, for example, the value of the index for January 2017 will reflect estimated costs for the period 1 January 2017 to 31 December 2017, expressed relative to estimated expected annual costs as of the base period (1 January 2015 to 31 December 2015). 
  • As the estimates are forward-looking, they therefore rely on forecasts and assumptions, and so will be subject to uncertainty. Information on suppliers’ realised costs is available in the financial statements published by the six large energy suppliers. See Understanding the profits of the large energy suppliers. 
  • The index does not include suppliers' ‘back-office’ operating costs (such as the costs of billing or metering – including the costs of the smart meter rollout) or their profit margins, which suppliers will seek to cover when setting their prices.  We are working to facilitate a more competitive, dynamic energy market, with more engaged consumers, and over time, we expect the changes we make to increase the pressure on suppliers to keep such  back-office costs down. 
  • The index is based on trends in the average prices of wholesale gas and electricity forward contracts in the month prior to the update. Suppliers will take different approaches to purchasing their wholesale energy, and many will buy their energy over an extended period. The index does not seek to estimate any impact this may have on a supplier’s costs. 
  • Other elements of costs are also likely to vary across individual suppliers. For example, suppliers may have some flexibility in how they meet their obligations under government programmes. This could mean, for example, that suppliers see different year-on-year changes in costs than indicated by the Index where they have chosen to meet their obligations under the ECO scheme at the start of the delivery period (the forecasts used in the Index are based on a flat delivery profile). Network charges will also vary between suppliers depending on things like the regional profile of their customer base.  
  • The index is calculated for a customer with typical consumption, which we have held fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In fact, energy use will vary from one year to the next, depending on temperatures. Energy use is also subject to long-run trends, for example as a result of increasing energy efficiency. Trends in consumption will also have a significant impact on the size of customers’ bills. 
  • Capacity market payments for winter 2017 are included in the index as wholesale electricity costs. Costs associated with contracts for difference are included as 'government obligation' costs. We consider that this allocation best reflects the nature of these costs, although we note the close relationship that exists between the different categories. We intend to keep under review what further detail might be provided on the costs associated with different government programmes.
  • In the August 2017 update, we have included the additional costs associated with the expected exemption of Energy Intensive Industries from the costs of the Renewable Obligation scheme, following the Government’s recent announcement. The Government’s decision on implementing the same exemption for the Feed-in Tariff scheme has yet to be published, and so the possible impact of a similar change to the way this programme is funded is not currently included.

Further details of how we calculate the index are provided in our methodology document.

This chart is part of our quarterly update to the Supplier Cost Index. For further details, see Understanding trends in energy prices.

 

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Chart

Source: Ofgem analysis.

Information correct as of: 1 August 2017

This chart shows the contribution of trends in different cost categories to the overall year-on-year change in the Supplier Cost Index.

At-a-glance summary

Between August 2016 and August 2017, the Supplier Cost Index increased by 1.2%. 

  • Wholesale gas and electricity prices are at a similar level to a year earlier
  • The driver of the small increase in the index compared to a year before is upwards pressure as a result of ongoing increases in the forecast costs associated with government programmes to support renewable and low-carbon electricity generation, which have increased the dual fuel index by 1.7 percentage points.
  • These increases have been partially offset by reductions in network charges for 2017/18.

We update this chart on a quarterly basis. Click the ‘more information’ tab above for details of how to interpret the figures in the chart and for information on how the index has been calculated.

Policy Areas:

  • Electricity - retail markets
  • Gas - retail markets

Data Table

Breakdown of the year-on-year change in the Supplier Cost Index

Impact on Cost Index (Aug 2017 vs Aug 2016)
Wholesale (electricity)0.4
Wholesale (gas)0.0
Network (electricity)-0.4
Network (gas)-0.4
Government obligations (electricity)1.7
Government obligations (gas)-0.1

More information

How to interpret the year-on-year change in the Supplier Cost Index

The breakdown is calculated by combining the percentage change in each category of expected costs, with an estimate of the importance of that cost to suppliers' total costs. Adding the bars together gives the overall change in the index.

Note, therefore, that the percentages shown are not the same as the percentage change in the individual categories of costs. For example, if the chart shows a one percentage point contribution for wholesale gas this does not mean that wholesale gas costs have risen by 1%, rather that there has been an increase in wholesale gas costs which has caused the overall cost index to rise by 1%. As wholesale gas costs make up only one part of suppliers' overall costs, the percentage increase in these costs would have been significantly higher to result in a 1% increase in the overall cost index.

It is important to bear in mind that the contributions shown relate only to the direct charges to suppliers associated with the different types of costs, and do not take into account the relationships between the categories.

For instance, trends in network charges to electricity generators are not included in the ‘network charges’ component of the breakdown, as they are not paid directly by suppliers – and will instead affect wholesale electricity prices. To give another example, a reduction in wholesale prices (and so the wholesale cost component of the index) will be associated with an increase in supplier payments to fund Contracts for Difference, which support low carbon electricity generation.

For this reason, the contribution of different types of costs to the index cannot be interpreted as showing the totality of the impact of government policies or network charges on consumers’ bills.

Methodology

  • We calculate the Supplier Cost Index by estimating trends in network charges, wholesale prices and the charges to suppliers associated with government programmes (note that in some cases, these charges only apply to large and medium-sized suppliers). 
  • These estimates are then combined with information on the relative scale of each of these categories of cost to calculate the trend in the overall Supplier Cost Index. The weights given to each category of costs for the period January-December 2016 are as follows: wholesale electricity - 24.5%, wholesale gas - 28.0%, networks electricity - 18.8%, networks gas - 17.4%, government obligations electricity - 10.1% , government obligations gas - 1.2%. 
  • The index reflects estimated expected annual costs, covering the 12 months from the time of each update, based on the best information available at the time. So, for example, the value of the index for January 2017 will reflect estimated costs for the period 1 January 2017 to 31 December 2017, expressed relative to estimated expected annual costs as of the base period (1 January 2015 to 31 December 2015).  
  • As the estimates are forward-looking, they therefore rely on forecasts and assumptions, and so will be subject to uncertainty. Information on suppliers’ realised costs is available in the financial statements published by the six large energy suppliers. See Understanding the profits of the large energy suppliers. 
  • The index does not include suppliers' ‘back-office’ operating costs (such as the costs of billing or metering – including the costs of the smart meter rollout) or their profit margins, which suppliers will seek to cover when setting their prices. We are working to facilitate a more competitive, dynamic energy market, with more engaged consumers, and over time we expect the changes we make to the retail markets to increase pressure on suppliers to keep such back-office costs down. 
  • The index is based on trends in the average prices of wholesale gas and electricity forward contracts in the month prior to the update. Suppliers will take different approaches to purchasing their wholesale energy, and many will buy their energy over an extended period. The index does not seek to estimate any impact this may have on a supplier’s costs. 
  • Other elements of costs are also likely to vary across individual suppliers. For example, suppliers may have some flexibility in how they meet their obligations under government programmes. This could mean, for example, that suppliers see different year-on-year changes in costs than indicated by the Index where they have chosen to meet their obligations under the ECO scheme at the start of the delivery period (the forecasts used in the Index are based on a flat delivery profile). Network charges will also vary between suppliers depending on things like the regional profile of their customer base.  
  • The index is calculated for a customer with typical consumption, which we have held fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In fact, energy use will vary from one year to the next, depending on temperatures. Energy use is also subject to long-run trends, for example as a result of increasing energy efficiency. Trends in consumption will also have a significant impact on the size of customers’ bills.  
  • Capacity market payments for winter 2017 are included in the index as wholesale electricity costs. Costs associated with contracts for difference are included as 'government obligation' costs. Weconsider that this allocation best reflects the nature of these costs, although we note the close relationship that exists between the different categories. We intend to keep under review what further detail might be provided on the costs associated with different government programmes. 
  • In the August 2017 update, we have included the additional costs associated with the expected exemption of Energy Intensive Industries from the costs of the Renewable Obligation scheme, following the Government’s recent announcement. The Government’s decision on implementing the same exemption for the Feed-in Tariff scheme has yet to be published, and so the possible impact of a similar change to the way this programme is funded is not currently included.

Further details of how we calculate the index are provided in our  methodology document.

Further information

This chart is part of our quarterly update to the Supplier Cost Index. For further details, see Understanding trends in energy prices.

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Summary: August 2017

  • The Supplier Cost Index (dual fuel) was broadly flat between 1 May and 1 August 2017. This followed the 6% drop in the previous quarter. There was an increase in expected electricity costs offset by a reduction for gas, resulting in an increase of 0.9% for dual fuel.
  • The overall decline in the Index since the start of 2017 follows a steep increase in the second half of 2016 (a pattern driven primarily by sharp movements in wholesale prices). This means that the Index in August 2017 is currently 1.2% above its level in August 2016.
  • The period between January 2015 (the current start of index) and April 2016 saw a period of falling costs, with much larger reductions for gas than electricity. As a result, while the overall dual fuel index is now 4% below its level at the start of 2015, the electricity index is now around 8% higher, and the gas index around 14% lower.
  • The primary driver of changes in the Index over the period since 2015 has been movements in wholesale prices. The value of the Supplier Cost Index as of 1 August is based on average wholesale prices in July 2017 for delivery in the following 12 months. It is common among the large suppliers to purchase energy for customers on their ‘standard variable’ tariffs over an extended period (up to two years or more). This can create a lag between the latest movements in wholesale prices (as shown by the Index) and the costs suppliers incur for these customers.  The extent of the lag will vary depending on different suppliers’ approaches to purchasing energy. 
  • With forward wholesale prices at a similar level to a year earlier, the 1.2% increase in the Index compared to August 2016 is largely a result of a slight increase in forecast charges to suppliers associated with government obligations related to supplying electricity (particularly programmes associated with supporting renewable and low-carbon electricity generation).  These increases have been partially offset by reductions in network charges for 2017/18.
  • Note that the direct costs to suppliers in relation to government programmes that are captured in the Supplier Cost Index reflect only part of their impact on suppliers’ costs and consumer bills. For example, the Energy Company Obligation supports the installation of energy efficiency measures, which are expected to reduce energy consumption and so lower bills. Because the Index is calculated for a fixed level of consumption, it does not reflect this effect.
  • There are likely to be some additional upwards pressures on costs in the remainder of 2017 and into 2018. From October, suppliers will be required to make capacity market payments to help ensure that there is sufficient generation capacity in the winter. The costs associated with supporting renewable and low-carbon electricity generation are also expected to rise further.

How the Supplier Cost Index is calculated 

  • We calculate the Supplier Cost Index by estimating trends in network charges, wholesale prices and the charges to suppliers associated with government programmes (note that in some cases, these government charges only apply to large and medium-sized suppliers).
  • These estimates are then combined with information on the relative scale of each of these categories of cost to calculate the trend in the overall Supplier Cost Index. The weights given to each category of costs as of the base period in January 2014 are as follows: wholesale electricity - 27.5%, wholesale gas - 35.2%, networks electricity - 15.0%, networks gas - 13.3%, government obligations electricity - 7.6%, government obligations gas - 1.3%.
  • The index reflects estimated expected annual costs, covering the 12 months from the time of each update, based on the best information available at the time. So, for example, the value of the index for January 2017 will reflect estimated costs for the period 1 January 2017 to 31 December 2017, expressed relative to estimated expected annual costs as of the base period (1 January 2014 to 31 December 2014).
  • As the estimates are forward-looking, they therefore rely on forecasts and assumptions, and so will be subject to uncertainty. Information on suppliers’ realised costs is available in the financial statements published by the six large energy suppliers. See Understanding the profits of the large energy suppliers.
  • The index does not include suppliers' ‘back-office’ operating costs (such as the costs of billing or metering – including the costs of the smart meter rollout) or their profit margins, which suppliers will seek to cover when setting their prices. We are working to facilitate a more competitive, dynamic energy market, with more engaged consumers. Over time, we expect the changes we make to put more pressure on suppliers to keep such back-office costs down.
  • The index is based on trends in the average prices of wholesale gas and electricity forward contracts in the month prior to the update. Suppliers will take different approaches to purchasing their wholesale energy, and many will buy their energy over an extended period. The index does not seek to estimate any impact this may have on a supplier’s costs.
  • Other elements of costs are also likely to vary across individual suppliers. For example, suppliers may have some flexibility in how they meet their obligations under government programmes. This could mean, for example, that suppliers see different year-on-year changes in costs than indicated by the Index where they have chosen to meet their obligations under the ECO scheme at the start of the delivery period (the forecasts used in the Index are based on a flat delivery profile). Network charges will also vary between suppliers depending on things like the regional profile of their customer base. 
  • The index is calculated for a customer with typical consumption, which we have held fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In fact, energy use will vary from one year to the next, depending on temperatures. Energy use is also subject to long-run trends, for example as a result of increasing energy efficiency. Trends in consumption will also have a significant impact on the size of customers’ bills.
  • Capacity market payments for winter 2017 are now included in the index. In contrast to the methodology document published in January, we have categorised these as wholesale electricity costs. We consider that this allocation best reflects the nature of these costs, although we note the close relationship that exists between the different categories. We intend to keep under review what further detail might be provided on the costs associated with different government programmes. 
  • In the August 2017 update, we have included the additional costs associated with the expected exemption of Energy Intensive Industries from the costs of the Renewable Obligation scheme, following the Government’s recent announcement. The Government’s decision on implementing the same exemption for the Feed-in Tariff scheme has yet to be published, and so the possible impact of a similar change to the way this programme is funded is not currently included.

Further details of how we calculate the index are provided in our methodology document

Your feedback

We are always looking for ways to improve our data. If you have feedback, please contact us at marketmonitoring@ofgem.gov.uk

Below you can view publications and updates relating to our monitoring of suppliers' costs, and earlier monitoring under the Supply Market Indicator.

Publications and updates

  • Published: 9th Mar 2017
  • Charts and data
  • 3 Associated documents
Text and charts published as part of previous updates to the Supplier Cost Index.

  • Published: 9th Mar 2017
  • Charts and data, Guidance
  • 1 Associated documents
Supplier Cost Index (SCI): A description of the methodology used to calculate the Supplier Cost Index.

  • Published: 19th Jan 2017
  • Decisions
  • 2 Associated documents
A letter setting out our decision to launch the new Supplier Cost Index (SCI).

  • Published: 28th Nov 2016
  • Charts and data
  • 0 Associated documents
This page gives a snapshot of how ‘standard variable’ tariffs (SVTs) compare on average by supplier and against the cheapest available tariffs.

  • Published: 3rd Aug 2016
  • Closed: 14th Sep 2016
  • Consultations and responses
  • 10 Associated documents
In May 2015 we suspended our monthly Supply Market Indicator (SMI) publication to review of our approach. After consultation, we have now decided on a new Supplier Cost Index.

  • Published: 30th Apr 2015
  • Charts and data
  • 2 Associated documents
A methodology report explaining the approach we have taken to produce our Supply Market Indicator (SMI).

  • Published: 30th Apr 2015
  • Charts and data
  • 13 Associated documents
Data published as part of our Supply Market Indicator (SMI) between March 2014 and April 2015.

  • Published: 18th Mar 2015
  • Expected: Mar 2015
  • Closed: 22nd Apr 2015
  • News and blogs
  • 0 Associated documents
Upcoming Consultation: we are currently reviewing Typical Domestic Consumption Values (TDCVs) for gas and electricity.

  • Published: 10th Jun 2014
  • Open letters and correspondence
  • 1 Associated documents
This is our letter calling on large energy suppliers to explain the impact of falling wholesale prices on customer bills. You can view the responses received to the letter below. "Dear, Wholesale Costs

  • Published: 11th Oct 2013
  • Charts and data
  • 0 Associated documents
This webpage details the updates we have made to our Supply Market Indicators.

Pages