Householders are being warned to brace themselves for a rise in their electricity bills as a series of freak events conspires to send wholesale prices rocketing.
Safety concerns at France’s nuclear power plants operated by the energy company EDF have led to many reactors being temporarily shut down. There have been similar suspensions in Belgium. In addition, a lack of rain in Norway and Sweden – whose hydro plants generate large amounts of electricity for their European neighbours – has limited both countries’ energy production.
The combined effect has been to send the price at which energy companies buy their power through the roof.
Last Monday, a UK energy company buying power on a next-day contract would have paid about £150 a megawatt hour. The average price a year ago was £38.10. For companies that had not agreed forward contracts, the cost has soared to more than £1,000.
Several smaller electricity suppliers have already raised prices or withdrawn competitive tariffs. Energy analysts say it will not be long before the big operators follow if, as looks possible, this winter starts with a protracted cold snap.
An index tracking the price power companies pay for electricity, produced by the consultancy Cornwall Energy, is at its highest since it started in 2012. “It is unusual for there to be significant volumes of outages in the French nuclear fleet, however this is also one of our tightest winters in recent times in terms of extra capacity, which has also influenced how high prices rise,” said Cornwall analyst Tom Edwards.
Twenty of EDF’s nuclear reactors have been stopped for checks on their steam generators, five more than would normally be shut down for maintenance at any one time. In July, EDF was forced to lower its 2016 nuclear output target to 395-400 TWh (terrawatt hours) from 408-416 TWh because of the need for “additional controls during the second half of the year” to show its reactors can operate safely. Last month, the group revised its nuclear output target again, from 380-390 TWh to 378-385 TWh.
A spokeswoman said it was looking at ways to ensure it could maintain electricity generation by using its thermal and hydraulic plants. She said EDF would buy more electricity on the European wholesale markets if necessary and use “contractual flexibilities with some industrial customers and individuals to limit their electricity consumption”.
Edwards said supply issues were currently to blame for price rises, but extra demand could soon be a factor. “The increase was primarily driven by rising wholesale prices, so the effect will be driven by supply and demand issues,” he said. “If it’s a cold winter and supply issues remain, then this should persist for the next three to four months. There has been some concern raised about how suppliers will cope over the winter if they aren’t able to hedge against these short-term price rises.”
Earlier this month, the Met Office predicted that the chance of the UK experiencing temperatures in the “cold” category was 30% – 1.5 times the usual risk – and warned that “contingency planners and others with sensitivity to cold weather might need to consider this elevated level of risk”.
Larger operators that generate their own electricity can protect themselves against rising wholesale costs. But this is not so for smaller operators. Earlier this month, Southend Energy, one of the larger independent operators, announced rises of 9% and 8.4% respectively on its fixed and greener tariffs.
“Some suppliers have increased the price of their fixed tariffs following the recent rise in wholesale energy prices, which is putting pressure on all suppliers’ costs,” said a spokesman for the energy markets regulator, Ofgem, which suggested many consumers could save about £300 a year by switching.
Edwards said the current uncertainty would be felt by consumers in the longer term. “Suppliers will increase their standard variable tariffs if costs do rise substantially, but this
will be affected by their hedging ahead of this winter. We would expect fixed tariffs in the future to be higher to take into account expected risk of short-term price volatility.”