Supply Market Indicator for March 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 March show that:
Our estimate of the average dual fuel bill for the next 12 months from March is £1,295. This is £6 lower than last month’s estimate and around £60 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 £553 or 43 per cent of an average dual fuel bill. This is around £13 lower than last month’s estimate. The equivalent estimate a year ago was £633.
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 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 £4 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 marginally higher than our estimate a year ago.
In aggregate, costs have fallen by around £13 from February’s estimate to £1,180. 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 £118 or 9 per cent of the estimated annual dual fuel bill. This is up £5 from the February 2015 estimate and can be explained by the fact that prices for the delivery of gas and electricity in the future are lower than they were last month.
The SMI analysis is available in full at Supply Market Indicator.
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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 latest review of the companies’ 2013 statements. We expect all the large suppliers to have published their 2014 consolidated segmental statements within four months of the end of their financial year, following our decision last year to set a faster timetable for suppliers.
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