Wholesale Energy Prices Rise
Political pressure is mounting on the UK's energy suppliers to rein in price increases.
It comes after the latest round of price increases by three of the big six energy suppliers. They have all blamed their moves on higher wholesale energy prices. But why does the wholesale market matter for household bills?
The first thing to understand is that companies selling electricity or gas to households normally do not produce all of this energy themselves. Some of it is bought either as long-term supply contracts or on the wholesale energy market. That is the bit of the energy bill that changes the most.
Other costs, such as running power plants, do not change overnight and will not jack up a bill by 20%. Meanwhile even under long-term supply contracts, the cost often moves in line with the traded market.
That is because suppliers do not want to be locked into a fixed price for too long. Instead they agree to let the price fluctuate, for example by tracking an index of wholesale transactions.So will a simple check of the wholesale price show whether the energy suppliers are justified in pushing up prices?