Supply Market Indicator for April 2015
Press release
Publication date
Industry sector
Supply and Retail Market
Today Ofgem has published its latest supply market indicator (SMI). The SMI is published on the last Thursday of each month.
The SMI is a 12-month forward look at cost trends in the domestic energy market. It estimates the average annual household bill and the annual cost per customer faced by a typical large supplier to deliver gas and electricity. Ofgem’s goal in producing the SMI is to make the relationship between the costs faced by energy suppliers and household consumer bills more transparent and accessible. This makes the market clearer for consumers.
The supply market indicator does not represent the cost trends of any one particular supplier. It includes an estimate of a typical large supplier’s pre-tax margin. This is not a statement of past, current or predicted future profits.
The actual pre-tax profit earned by any large supplier will depend on a variety of factors. These include a supplier’s chosen hedging strategy, cost efficiency and actual consumption levels. Demand for energy is affected by weather, especially in gas. Suppliers also still have to pay taxes and fund debt payments from the margin they make. Reporting margins in this way is common across various sectors.
The latest indicators for April show that:
Our estimate of the average dual fuel bill for the next 12 months from April is £1,292. This is £3 lower than last month’s estimate and around £50 lower than our estimate a year ago.
This assumes seasonally normal demand, and takes into account the price cuts to variable tariffs announced by large suppliers earlier this year, as well as the introduction of a number of cheaper fixed tariffs to the market.
We estimate that wholesale gas and electricity costs, based on our assumption that suppliers buy their energy up to 18 months ahead of delivery, will be around £546 or 42 per cent of an average dual fuel bill. This is around £7 lower than last month’s estimate. The equivalent estimate a year ago was £617.
We estimate that network costs for the next 12 months will be £295 or approximately 23 per cent of the average dual fuel bill. This is broadly the same as it was last month and is around £7 lower than our estimate a year ago. This is due to the impact of Ofgem’s price control for electricity distribution companies.
We estimate that the cost of environmental and social obligations for the next 12 months will be around £94 or approximately 7 per cent of the average dual fuel bill. This is around £2 higher than our estimate a year ago.
Supplier operating costs for the next 12 months are estimated to be around £177 or approximately 14 per cent of the average dual fuel bill. This is the same as our estimate a year ago.
In aggregate, costs have fallen by around £6 from March’s estimate to £1,174. This is due to lower estimated wholesale costs for this month.
Our estimate of the pre-tax margin a typical large supplier could make over the next 12 months, based on a 13-month rolling average is £120 or 9 per cent of the estimated annual dual fuel bill. This is up £2 from the March 2015 estimate and can be explained by the fact that we expect wholesale costs to continue to decline over the coming months as falls in wholesale prices continue to feed through.
The SMI analysis is available in full at Supply Market Indicator
Notes to editors
Ofgem’s work on transparency of costs and revenues: the consolidated segmental statements
Since 2009 Ofgem has required the six largest energy suppliers to publish yearly statements on the actual costs, revenues and profits for their generation and supply businesses. See our review of the companies’ 2013 statements. Last year we decided to set a faster timetable for the large suppliers, and require them to publish their 2014 consolidated segmental statements within four months of the end of their financial year. All large suppliers apart from SSE have now published their 2014 Statements. SSE has a different reporting year and is due to publish its statement at the end of July.
Our web page on supplier profits also has a series of graphs showing breakdowns of profit figures from 2009 to 2013.
For further press information contact:
Kate Wilcox: 020 7901 7113
Chris Lock: 020 7901 7225
Out of hours media contact number: 07766 511470