British Gas released their quarterly report, with an update of exactly what goes into the prices suppliers charge. During the second quarter of 2020 the UK economy experienced the full impact of the coronavirus lockdown. In the energy market, the lockdown has resulted in a significant decline in energy demand and a fall in wholesale prices. These two effects combined with an increase in renewable generation has forced the Electricity System Operator (ESO), National Grid ESO, to take more actions to keep the system stable at additional cost. Since these costs are shared with industry participants based on consumption, lower demand has resulted in a smaller charging base and in turn a higher balancing charge.
With non-energy costs accounting for around 62% and 32% of businesses’ electricity and gas bills respectively, these rising costs are pushing energy prices upwards, particularly electricity prices. Gas demand has been less severely impacted than electricity and with storage at its highest levels since 2017, both wholesale and retail prices remain subdued.
Several measures have been put in place to soften the impact of this sharp rise in non-energy costs on customers’ bills. However, the combination of all the costs together means the increase will be felt by many.
As we enter into the second half of the year, there are encouraging signs that economic activity is gradually starting to recover. Higher electricity consumption is likely to stabilise some of the more volatile charges such as BSUoS (Balancing Services Use of System) and RO (Renewables Obligation).
Business energy prices for both electricity and gas have been falling since the end of last summer, reflecting a general decline in wholesale or commodity prices.
This decline in energy prices accelerated during the coronavirus lockdown. However, by the end of the quarter, electricity prices have started to rise again driven by the impact of Non-Commodity/Third Party costs (see above) as well as rising wholesale prices.