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.

We have a role providing 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 (Until May 2017) & Energyhelpline (June 2017 onwards).

Information correct as of: October 2018

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. 

From February 2017 the prices shown in the chart are calculated using the new TDCV values that entered into effect from 1st of October 2017 (see the methodology section for more details).

In practical terms, this means that the tariffs offered after February 2017 are likely to appear slightly lower than those before February 2017.  

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)
28/01/20121020.161024.33915.27906.56947.56
28/02/20121000.761017.41886.18878.10930.29
28/03/2012997.251017.41886.18878.10936.54
28/04/2012997.251017.35895.69878.10937.68
28/05/2012997.251017.35895.69878.10929.78
28/06/2012997.251032.16895.69895.69945.53
28/07/2012997.251032.16895.69875.93928.99
28/08/2012997.251030.02899.10875.93924.85
28/09/2012997.251017.84901.47875.93931.04
28/10/20121009.001020.51906.17893.85956.00
28/11/20121030.781075.12958.21909.59997.71
28/12/20121061.801087.65990.70909.59994.59
28/01/20131074.421087.65957.18909.59990.81
28/02/20131074.421119.05957.18909.59994.56
28/03/20131074.421119.05966.54909.59995.50
28/04/20131074.421119.05966.54909.59988.37
28/05/20131074.431119.05966.54962.43997.77
28/06/20131074.431119.05966.54769.95967.26
28/07/20131074.451119.05984.68769.95974.82
28/08/20131074.451119.05971.77769.95988.47
28/09/20131074.451119.05971.77769.95979.55
28/10/20131074.451127.021011.80769.95995.67
28/11/20131105.941123.75993.40769.95992.26
28/12/20131138.951123.751033.47769.95997.00
28/01/20141145.841125.141033.47975.211013.73
28/02/20141134.091128.761033.97966.341014.19
28/03/20141128.101126.611024.79964.311016.25
28/04/20141128.101129.621000.38946.42995.26
28/05/20141128.101129.621000.38944.55995.13
28/06/20141128.101129.621000.38944.55992.88
28/07/20141128.101134.191000.38944.95976.39
28/08/20141128.101127.791000.38943.43978.98
28/09/20141128.101158.39960.90942.27972.34
28/10/20141128.101131.80953.40931.02960.15
28/11/20141128.101131.80921.88914.51947.94
28/12/20141128.101130.51916.21906.14929.69
28/01/20151124.331130.51875.40871.26895.39
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
28/02/20171081.271027.06928.48829.10869.79
28/03/20171109.481035.47922.23829.10873.38
28/04/20171122.281041.56923.55863.31874.62
28/05/20171122.281039.22923.57826.52861.76
28/06/20171122.281026.98923.57835.76852.58
28/07/20171122.281030.63922.82829.91844.94
28/08/20171122.281030.76910.05810.11839.30
28/09/20171134.951026.42904.48826.73837.66
28/10/20171134.951031.41897.98826.73854.69
28/11/20171134.951044.84928.59826.73846.77
28/12/20171134.951040.86973.04798.72841.48
28/01/20181134.951036.14907.89809.32840.81
28/02/20181134.951039.85900.98810.06840.58
28/03/20181134.951044.29900.98810.11842.91
28/04/20181138.281061.811000.42788.16820.46
28/05/20181138.281060.56962.53788.16832.69
28/06/20181172.201066.39953.16796.99845.91
28/07/20181184.791075.35965.27826.73861.22
28/08/20181194.001091.02951.33842.49897.02
28/09/20181205.621104.911043.21920.60982.09

More information

At-a-glance summary

As of September 2018, the average price of SVTs for the six large suppliers for a typical dual fuel customer paying with direct debit was £1,206, an increase of £12 from the previous month, and an increase of £71 since the start of 2018.

Prices across the whole market have been increasing. The new cheapest tariff in the market in September 2018 was £921, £78 more expensive than the cheapest tariff in the previous month.

As a result, the differential between the average price of SVTs for the six large suppliers and the market cheapest tariff decreased from £352 to £285 between August and September 2018. This is the first time the differential has been less than £300 since July 2017.

EDF increased the price of its SVT on 31 August, which is the reason for the increase in the average price of SVTs for the six large suppliers.

British Gas and ScottishPower each announced another price rise for customers on both SVT and default fixed tariffs, which took effect on 1 October 2018 and 8 October 2018, respectively. These will be captured in next month’s update.

Please note that, from 1 April 2018, British Gas’ SVT, which is included in the average SVT price for the six large suppliers, is no longer available to new customers.

For details on prices of fixed default tariffs, please see the chart showing Average tariff prices per supplier.

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 bill values associated with the different tariff types using a ‘typical medium domestic consumer’. As of October 2017, typical consumption values for a medium consumer are 12,000kWh/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 licences 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 10 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 10 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 (Until May 2017) & Energyhelpline (June 2017 onwards).

Information correct as of: October 2018

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.

From February 2017 the prices shown in the chart are calculated using the new Typical Domestic Consumption Values (TDCV) values that entered into effect from 1st of October 2017 (see the methodology section for more details).

In practical terms, this means that the tariffs offered after February 2017 are likely to appear slightly lower than those before February 2017.  

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)
28/01/2012915.27976.701021.54906.56971.04969.61
28/02/2012886.18976.701021.54878.10971.04969.61
28/03/2012886.18976.701021.54878.10971.04969.61
28/04/2012895.69953.401021.54878.10953.40969.24
28/05/2012895.69953.401021.54878.10890.12969.24
28/06/2012895.69953.401021.54895.69953.401017.42
28/07/2012895.69953.401021.54875.93953.401017.42
28/08/2012899.10957.031021.54875.93957.031017.42
28/09/2012901.471020.711021.54875.93988.141017.42
28/10/2012906.171020.711069.39893.85988.141019.30
28/11/2012958.211020.711069.39909.59979.351045.64
28/12/2012990.701071.381133.19909.59979.351045.64
28/01/2013957.181037.201133.19909.59979.351045.64
28/02/2013957.181037.201133.19909.591037.201045.64
28/03/2013966.541046.571133.19909.591046.571045.64
28/04/2013966.541046.571133.19909.591046.571045.64
28/05/2013966.541046.571133.19962.43996.901045.64
28/06/2013966.541046.571133.19769.95996.901045.64
28/07/2013984.681075.511133.19769.95996.901045.64
28/08/2013971.771051.791133.19769.951051.791045.64
28/09/2013971.771051.791133.19769.951051.791045.64
28/10/20131011.801079.911133.19769.951070.991093.35
28/11/2013993.401058.151150.97769.951058.151093.35
28/12/20131033.471101.651178.61769.951101.651093.35
28/01/20141033.471101.651178.61975.211101.651172.77
28/02/20141033.971108.101178.61966.341108.101172.77
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
28/06/20141000.381069.951170.86944.551069.951162.40
28/07/20141000.381069.951170.86944.951029.051162.40
28/08/20141000.381069.951170.86943.431038.881154.43
28/09/2014960.901030.951170.86942.271030.951154.43
28/10/2014953.401046.451170.86931.021024.451154.43
28/11/2014921.881003.791170.86914.511003.791154.43
28/12/2014916.211003.791170.86906.141003.791151.22
28/01/2015875.40945.461148.99871.26945.461148.99
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
28/04/2016723.91793.481070.37723.91793.481030.27
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
28/02/2017928.481033.401015.43829.10935.19970.67
28/03/2017922.231016.741019.21829.10949.48970.67
28/04/2017923.551018.06994.53863.31946.43970.67
28/05/2017923.571018.08994.53826.52923.47979.27
28/06/2017923.571018.08994.53835.76923.23979.27
28/07/2017922.821017.33994.53829.91923.23979.27
28/08/2017910.051004.56988.90810.11923.47979.27
28/09/2017904.481051.43988.90826.73923.47979.27
28/10/2017897.981012.47988.90826.73943.35978.04
28/11/2017928.591100.89988.90826.73958.08978.04
28/12/2017973.041051.43988.90798.72958.08957.12
28/01/2018907.891051.43988.90809.32958.08960.06
28/02/2018900.981050.871028.21810.06958.08945.76
28/03/2018900.981074.651028.21810.11958.08945.76
28/04/20181000.421143.141030.55788.16958.08946.63
28/05/2018962.531057.041030.93788.16958.08946.63
28/06/2018953.161033.191070.34796.99958.08946.63
28/07/2018965.271045.291070.34826.73990.66946.63
28/08/2018951.331198.371070.50842.49990.68946.54
28/09/20181043.211138.841070.50920.601067.64983.86

More information

At-a-glance summary

Direct debit customers have traditionally been offered the cheapest tariffs, followed by standard credit customers and then those using prepayment meters.  

After the introduction of the prepayment safeguard tariff in April 2017, the overall cheapest tariffs have continued to be those for direct debit customers. However, the ranking between standard credit and prepayment cheapest tariffs has fluctuated over time. In June 2018, the large six suppliers’ cheapest tariff for prepayment customers was greater than the cheapest tariff offered to standard credit customers. However, since August 2018 the cheapest standard credit tariff offered by the large six suppliers has been more expensive than the large six suppliers’ cheapest prepayment tariff. Across the market, the cheapest tariff for prepayment customers in September 2018 continued to be below the cheapest tariff offered to standard credit customers.

A prepayment safeguard tariff was introduced on 1 April 2017, limiting the amount that suppliers can charge their prepayment customers. We extended the safeguard tariff to a further one million vulnerable customers in receipt of the government’s Warm Home Discount on 2 February 2018. For more information on the impact of the safeguard tariff, please see here.

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 bill values associated with the different tariff types using a ‘typical medium domestic consumer’. As of October 2017, typical consumption values for a medium consumer are 12,000kWh/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 licences 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 2018

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

British GasE.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%
20178.01%5.21%0.93%-4.88%0.46%6.83%4.20%

More information

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

Between 2009 and 2016, 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 2016 and 2017, profits earned by the six large suppliers continued to vary substantially, but showed a decrease in the average combined gas and electricity pre-tax domestic supply margin from 4.5% to 4.2%. EDF returned to profit, reporting increasing domestic margins year-on-year from -0.9% to 0.9%, while npower reported higher domestic margins, despite making the biggest loss (-4.9%). British Gas also reported an increase in domestic margins and continued to earn the highest margins amongst the six large suppliers (8%). E.ON and SSE showed a decreasing trend, while ScottishPower reported a large fall in domestic margins year-on-year from 5.2% to 0.5%.

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: May 2018

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

This chart is no longer being updated.

At-a-glance summary

  • In the three months (between 1 February 2018 and 1 May 2018) the index increased by 5.3%, driven primarily by increases in wholesale gas and electricity costs. There was also a small increase in the costs of government obligations related to supplying electricity.
  • Overall, the Supplier Cost Index (dual fuel) increased by 14.1% between 1 May 2017 and 1 May 2018.
  • The 12 month increase was primarily driven by increases in wholesale gas and electricity costs.
  • The index starts in January 2015. Costs fell during 2015 and early 2016, with much larger reductions for gas than electricity. By the 1 May 2018, the dual fuel index is 9.7% above its level at the start of 2015. The electricity index is 19.7% higher, while the gas index is 0.1% higher.

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-1592.9995.3790.72
Mar-1596.7997.9895.66
Apr-1595.3096.4294.24
May-1594.9696.5893.42
Jun-1594.0096.3291.79
Jul-1593.6596.4990.94
Aug-1592.8496.3689.48
Sep-1590.7095.4586.18
Oct-1590.5195.9185.35
Nov-1589.1095.2483.24
Dec-1586.7494.6079.26
Jan-1685.1494.0876.61
Feb-1681.8091.7972.29
Mar-1681.4792.1071.35
Apr-1682.3893.5271.76
May-1683.2694.2572.79
Jun-1685.8896.4275.84
Jul-1691.18100.8581.97
Aug-1695.48104.6186.78
Sep-1693.09103.4283.24
Oct-1692.66104.3281.56
Nov-16104.35118.8690.51
Dec-16105.01118.9991.68
Jan-1798.77108.5089.49
Feb-17102.23109.9894.85
Mar-17100.41108.0393.14
Apr-1796.68105.4388.35
May-1796.06105.0787.48
Jun-1795.61105.0586.61
Jul-1796.18106.6486.22
Aug-1796.52107.6785.89
Sep-1799.70110.6789.25
Oct-17101.64112.1291.66
Nov-17103.12112.9593.76
Dec-17105.71114.4797.37
Jan-18106.70114.6699.12
Feb-18104.13113.5495.15
Mar-18102.91112.9393.36
Apr-18105.90116.0096.28
May-18109.65119.70100.07

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 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 are based on financial statements from the six large suppliers, and are as follows:

- wholesale electricity: 26.7%

- wholesale gas: 35.9%

- networks electricity: 15.4%

- networks gas: 14.4%

- government obligations electricity: 6.7%

- government obligations gas: 1.0%.

 

  • 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 May 2018 will reflect estimated costs for the period 1 May 2018 to 30 April 2019, expressed relative to estimated expected annual costs as of the base period (1 January 2015 to 31 December 2015).
  • The estimates in the index 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 estimates of 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.
  • 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. We have held consumption fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In practice, 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 were included in the index from winter 2017, we have categorised these as wholesale electricity costs. We consider that this allocation best reflects the nature of these costs. We intend to keep under review what further detail might be provided on the costs associated with different government programmes. 
  • Since 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 announcement in December 2017. 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.

 

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Chart

Source: Ofgem analysis.

Information correct as of: May 2018

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

This chart is no longer being updated.

At-a-glance summary

Between May 2017 and May 2018, the Supplier Cost Index increased by 14.1%.

  • The increase was primarily driven by increases in the wholesale costs of both gas and electricity accounting for 12 percentage points of the 14.1% increase in the index. Wholesale gas prices have increased slightly more than wholesale electricity prices.
  • The costs of government obligations related to supplying electricity (particularly programmes associated with supporting renewable and low-carbon electricity generation). These costs increased the dual fuel index by 1.9 percentage points.
  • The costs of government obligations related to supplying gas have remained largely unchanged.
  • There were in addition, smaller increases in network charges related to supplying gas, which are very nearly offset by a reduction in network costs related to supplying electricity.

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 (May 2018 vs. May 2017)
Wholesale (electricity)5.8
Wholesale (gas)6.2
Network (electricity)-0.3
Network (gas)0.5
Government obligations (electricity)1.9
Government obligations (gas)0.0

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 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 are based on financial statements from the six large suppliers, and are as follows:

- wholesale electricity: 26.7%

- wholesale gas: 35.9%

- networks electricity: 15.4%

- networks gas: 14.4%

- government obligations electricity: 6.7%

- government obligations gas: 1.0%.

 

  • 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 May 2018 will reflect estimated costs for the period 1 May 2018 to 30 April 2019, expressed relative to estimated expected annual costs as of the base period (1 January 2015 to 31 December 2015).
  • The estimates in the index 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 estimates of 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.
  • 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. We have held consumption fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In practice, 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 were included in the index from winter 2017, we have categorised these as wholesale electricity costs. We consider that this allocation best reflects the nature of these costs. We intend to keep under review what further detail might be provided on the costs associated with different government programmes. 
  • Since 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 announcement in December 2017. 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 the profits of the large energy suppliers.

 

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Summary: May 2018

  • In the three months (between 1 February 2018 and 1 May 2018) the index increased by 5.3%, driven primarily by increases in wholesale gas and electricity costs. There was also an increase in the costs of government obligations related to supplying electricity.
  • Overall, the Supplier Cost Index (dual fuel) increased by 14.1% between 1 May 2017 and 1 May 2018.
  • The 12 month increase was primarily driven by increases in wholesale gas and electricity costs.
  • The index starts in January 2015. Costs fell during 2015 and early 2016, with much larger reductions for gas than electricity. By the 1 May 2018, the dual fuel index is 9.7% above its level at the start of 2015. The electricity index is 19.7% higher, while the gas index is 0.1% higher.

Click the ‘more information’ tab above for a description of how the index is calculated and which costs are included.

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 are based on financial statements from the six large suppliers, and are as follows:

- wholesale electricity: 26.7%

- wholesale gas: 35.9%

- networks electricity: 15.4%

- networks gas: 14.4%

- government obligations electricity: 6.7%

- government obligations gas: 1.0%

 

  • 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 May 2018 will reflect estimated costs for the period 1 May 2018 to 30 April 2019, expressed relative to estimated expected annual costs as of the base period (1 January 2015 to 31 December 2015).
  • The estimates in the index 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 estimates of 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.
  • 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. We have held consumption fixed over time to increase comparability with trends in suppliers’ prices (which are also typically expressed for a given level of consumption). In practice, 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 were included in the index from winter 2017, we have categorised these as wholesale electricity costs. We consider that this allocation best reflects the nature of these costs. We intend to keep under review what further detail might be provided on the costs associated with different government programmes. 
  • Since 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 announcement in December 2017. 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: 25th Jul 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 18 July 2012.

  • Published: 18th Jul 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 11 July 2012.

  • Published: 11th Jul 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 04 July 2012.

  • Published: 4th Jul 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 29 June 2012.

  • Published: 29th Jun 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 26 June 2012.

  • Published: 26th Jun 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 13 June 2012.

  • Published: 13th Jun 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 7 June 2012.

  • Published: 7th Jun 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 30 May 2012.

  • Published: 30th May 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 21 May 2012.

  • Published: 22nd May 2012
  • Charts and data
  • 1 Associated documents
See our Electricity and Gas Supply Market Indicators - 16 May 2012.

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