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Prices going up by up to 65% - why are renewal prices so much higher this year?

  • 19 August 2021
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Userlevel 7
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Re standing charges, My electric standing charge is increasing from 17.9p to 22.76p (+27%)

My gas standing charge is increasing from 16.16p to 24.92p (+54%). I don't know how either is justified.

If it's any consolation, your previous standing charges were low compared to most tariffs. 

Once upon a time gas/electric/water companies used to offer “low user” tariffs, where the regressive nature of standing charges was effectively softened by spreading it out over the first few kWh/m^3 of consumption. (The first few units consumed, each month, were more expensive than the rest.) For normal users it didn’t make a blind bit of difference, because they always consumed the same amount at the higher price, so it worked out like a fixed standing charge. But for really low users, it was better: and for the frugal, they were rewarded by reducing their consumption.

These days, such discounts for heavy users are properly recognised for what they are: regressive. Like some forms of taxation - if the rich pay more tax but what they pay is a lower %age of their income, that’s a regressive tax. They whinge about high taxes, but really taxes have got much more regressive over the last few decades.

Full disclosure: I think regressive taxes, and analogous tariff structures, are a Bad Thing.

I’m off to ask a question in the ask anything thread ...

Userlevel 7
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Hi everyone,

 

We've spoken to colleagues who are close to the pricing of OVO's plans to better understand the factors driving standing charge cost increases. 

 

As has been mentioned above, wholesale gas or electricity prices aren't having an impact on our fixed tariff standing charges (SC), but it's costing more to supply energy to our members right now which means these fixed charges have increased. This includes transmission and distribution costs as well as the cost of initiatives like the Smart meter roll out.

 

Lots of factors at play here to explain those increases in standing charges. For information on where to get support with high costs and bills see this page here

Userlevel 2

Just saying it's costing more doesn't explain 54% increases unless the costs have increased 54%. Have they? 

I’ve just received my renewal for a 2 year fixed rate gas and electricity account and it’s gone up a massive 85% can this be even possible ?

I know prices have gone up a lot but this is crazy, no one will sign up to I I don’t think

Bad timing I know, the variable price is only 10% higher than previous amount so the fixed price would allow for over £2500 increase in the variable price over the next 2 years. 
 

Are prices going to go up that much ?

Userlevel 7
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Hi @New999 .

Sorry for the wait, this took a while for me to catch and I’ve had to double check a few things.

Unfortunately, it’s a difficult time for the energy market right now, and this is one of those extremely unusual edge cases that’s very rarely seen. At the moment, with gas prices so high it’s actually costing suppliers more to buy and sell energy than what’s allowed for Variable Rate Tariffs due to the Ofgem Price Cap which doesn’t apply to Fixed Rate Tariffs. Because of this, Variable Rate Tariffs are basically causing suppliers to make a loss right now, since they cannot go beyond the cap without getting in trouble with the regulator. This is why the Fixed Rate deals seem more expensive - because they do currently reflect the costs that OVO and other suppliers are actually facing right now.

There’s a lot more costs that suppliers face than you might think as well. It’s an expensive business to be in!

However, the Ofgem Price Cap does get reviewed every six months and can be changed to increase or decrease the cap - which all suppliers then have to implement. If the cap decreases, all suppliers who are above the new limit have to drop their prices for affected tariffs to come back into compliance, whereas if the cap increases, suppliers can increase their prices up to the new limit at their discretion. It is almost certain that this would happen on the next review - especially given the current circumstances.

You’re free to choose to renew onto another fixed tariff or ride the storm with variable rate for now, but if you do the latter please keep an eye on the rates over the next few months and be ready to jump back to fixed rate before the variable rates increase again.

I hope this helps.

Userlevel 7

Recently, wholesale natural gas prices have been pushed up by many factors.

 

They’ve been rising across the globe, caused by lots of things – like a slowdown in wind energy, the UK’s relatively low levels of gas storage capacity, and economies switching back on again after Covid-19.

 

Unfortunately, this is affecting all energy suppliers. You can read more about all this in our blog post here and our FAQs here.

 

If you are worried about the impact of these price increases there are lots of ways we can help, so do call us if you’re struggling. The Ofgem website outlines helpful resources too. And the following organisations offer brilliant support if you need help with energy-efficiency and bills. 

 

Userlevel 2

So the huge increases in gas wholesale prices are being distributed across consumer gas AND electricity prices AND standing charges too, despite those not really having increased costs. If you have an all electric home, you're subsidising gas users. 

Why isn't the industry open and honest about this? 

Userlevel 7
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The answer to that question is perhaps a little less complex that you might think…

All you need to do is check out the OVO Fuel Mix, SSE Fuel Mix and the Fuel Mix for all other suppliers on the UK market. It’s very transparent, not least because it’s required by Ofgem.

Given that the latest reports indicated that between April 2020 and March 2021, Natural Gas made up around 38.2% of the average fuel mix across all suppliers combined (including those that hive since ceased trading) and OVO reported 49.60% you can see why this is affecting everything. OVO uses REGO (Renewable Energy Guarantees of Origin) certificates to balance that out by paying for renewable energy to be put back into the grid to offset the energy used by OVO members. The other 50.40% of OVO’s fuel mix came from renewable sources according to the declaration. SSE matches this as well, on the basis that the energy purchased for SSE customers is now managed by OVO.

You can also find this information for pretty much every active energy supplier. I’m afraid it wouldn’t be practical for me to round up the data for every single one right now, but you should be able to find it with a little research. If you need data on a particular supplier though, I’m happy to help with locating it - I just wouldn’t be too keen on scraping data from all of them.

Userlevel 2

In your link ovo say that they're currently using 100% renewables to source their electricity. And how does the gas price increase cause massive price rises in standing charges both for gas and electricity? 

Userlevel 7
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Per the terms and conditions on the OVO Fuel Mix disclosure.

OVO Terms and Conditions-O-Matic wrote:

1 100% of the renewable electricity we sell is backed by renewable certificates (Renewable Energy Guarantee of Origin certificates (REGOs)). See here for details on Renewable Energy Guarantee of Origin certificates and how these work. What's more, 20% of the electricity we sell is purchased direct from UK renewable generators.

2 By providing 100% carbon-neutral gas (15% green gas and 85% offset) and offsetting all associated lifecycle carbon emissions involved in the production and consumption of your electricity & gas, OVO Beyond reduces your yearly carbon emissions from the energy used in your home that's supplied by OVO to net zero. The renewable electricity we sell is backed by renewable certificates (Renewable Energy Guarantee of Origin certificates (REGOs)). Details on Renewable Energy Guarantee of Origin certificates and how these work. The green gas we sell is backed via renewable certificates (Renewable Gas Guarantees of Origin (RGGOs)). Details on Renewable Energy Guarantee of Origin certificates and how these work. We offset the remaining emissions by supporting UN REDD+ carbon reduction projects that are certified to the Verified Carbon Standard or the Gold Standard.

3 Bill savings are based on you making changes to your energy habits through your use of OVO Beyond. Actual savings will vary depending on your energy use and the changes you make.

4 OVO plants 5 trees for every OVO Beyond member through our award-winning I Dig Trees programme with The Conservation Volunteers. Trees absorb carbon dioxide from the atmosphere, so tree-planting helps to slow down climate change. Since 2015 we have planted over 1 million trees.

 

It is also worth noting that there are other costs as well, many of which come under your Standing Charges. You’ve also got Distribution Losses, which are very well explained in this document.

On top of that, you’ve got the usual business costs (HR, IT, Tax, VAT, Insurance, Buildings/Facilities, Payroll, NICs, Pensions, Security, Banking etc) that any business has to handle and then more stuff that’s specific to the energy sector. That list is too big to mention, but I think you can probably figure out some of it. You should check your bills to get a better breakdown of where the money goes. It’s probably more accurate than anything I can think of.

Userlevel 2

Obfuscation. 

1. Standing charges have increased up to 54%.  Which costs have increased to justify this?

2. From the title page of your link re energy mix:

 

Userlevel 7
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I’ve already given you everything that I know as requested. Any information I’ve not given you is purely because I don’t have it available.

However, it appears that I can’t make any further progress in this matter and it doesn’t look like you’ll accept my answers right now. As such, I will take my leave. Other forum members may still respond if they wish, but I will not respond to you again within this thread.

Goodnight

I am in the same position 

I am paying £90 pm duel fuel the new offers when it runs out in February is £266 pm wtf 

thats 150% increase in my energy costs how ????

 

Userlevel 2

i have said all along that i can fully see the reasons why gas and, to a certain extent, electricity prices have increased so much (and much worse is yet to come).  What I don’t understand is why standing charges are going up as much as they are.  

Also, whilst accepting that electricity prices are increasing too because some electricity is generated by burning gas, Evo’s clear statement that all their electricity comes from 2 wind farms means that the link to gas prices just isn’t there.  If you live in an all electric, Ovo supplied property, you must really be wondering what’s going on.

It seems, and has always seemed to me, that because the price cap exists and prevents suppliers applying the full increase where it’s deserved i.e. gas energy, they spread other increases over everything else even though it cant be directly justified.  I guess no one is prepared to openly admit that that is what’s happening.

Everybody has costs.  Inflation is going to hit hard this year too, but that’s 5 or 6%.  Not the 50 or 60% or more  increases that the standing charges have gone up by

Hi , just to add to what everyone else has been saying. What has the wholesale cost of gas got to do with the increase in electricity rates when I am paying a premium anyway to utilise 100% “green” electricity. If we are taking the hit for other energy providers who do not supply electricity in this way and are also going under because they can’t afford to operate under the current wholesale costs then what is the point of being with Ovo ?

Userlevel 7

 

What has the wholesale cost of gas got to do with the increase in electricity rates when I am paying a premium anyway to utilise 100% “green” electricity.

 

An understandable question this one, @Evostick1968 and it’s something that we’ve covered here previously:

 

Let’s break this down into two areas and talk about renewable energy generation first, and then touch on how energy is priced for energy suppliers here in the UK. We’ve got some help from a few different teams to get you OVO’s take on this!

 

The UK has made great progress to decarbonise the power sector with cheaper and more affordable renewable energy now making up almost half of the electricity generation across the UK. 

 

Currently, no matter what supplier you use, a home won’t actually run on 100% renewable electricity. Electrons generated by all sorts of technologies, including fossil fuelled power stations, mix together and travel through the electricity grid to the end customer.  Apart from being off-grid and having renewable microgeneration, there is currently no way to put exclusively renewable electricity into a home.

 

To support your 100% renewable energy tariff, we make sure that the amount of electricity you use is matched with renewable energy generation on the grid through purchasing certificates and from contracting with wind farms directly.

 

As there aren’t separate markets for green and non-green energy sources, there’s one wholesale price for electricity at any given time. This means that when the cost of electricity produced by burning gas goes up, so does the cost of electricity from renewable sources such as wind and solar.


There’s a few other elements of electricity pricing which can get fairly complex. We’ve touched up this in another related forum thread which you might find interesting, here. More info on this in our latest blog post here, and our FAQs, here.

Userlevel 2

Hi

I’m not sure what you’ve just said above matches  “1 source - renewables” and “100% renewable electricity”

 

Thank you Jess_Ovo for your response and sorry Bill for hi-jacking your thread. 

Jess , I am making a point that is very similar to what Bill has made and Bill has gone one stage further about the standing charge costs. I don’t presume to speak for Bill but our concerns I think are genuine and not just a “rant” about increased energy costs.

I made a conscious decision to use “green” electricity and fully appreciate that I am not getting a dedicated “feed” of it to my house and clearly you as a company are buying renewable energy directly or buying certs to offset indirectly other forms of generation which makes up grid supply which is the best that can be done by you at present.

The point is that I and I assume Bill , had chosen yourselves and your “renewable” tariff and at that time paid a premium for it and I personally was happy to do so. But regardless of how you source your supply you have made the claim that its 100% renewable and as well as feeling cheated that I paid a premium for it in the past thinking I was doing “my bit” I feel even more cheated that your 100%  renewable electricity plan does not at the very least provide us with a cost advantage against someone else who has decided to use a non-renewable tariff and pay less for it. Surely this is the time that you should be supporting the customers who have backed your stance on renewables and indeed probably helped fund it in the past.

These things should work both ways and you were happy to charge a premium at the time selling us a green ticket. Now to pull the rug when things get tough and backtrack playing the “we don't actually provide you with green electricity directly so you still have to pay for the gas generated version” is insulting at best and if we had regulators that actually had any ability to do anything it would be something they should be looking into.

Jess_Ovo this is not something I believe you will be able to do anything about as its a much bigger “company” issue but perhaps feed what you can up the chain as one or two voices can eventually add up to 10’s , 100’s and 1000’s if the will is there. 

 

 

Userlevel 2

I think the real answer is that the energy companies are now in such a poor position because the energy cap doesn’t cover the cost of gas and therefore they have to increase the prices of everything - gas, electricity (renewable or not) and standing charges, to try and get as much income as possible.

They’re just not able to admit it. 

 

Userlevel 7

 

Jess , I am making a point that is very similar to what Bill has made and Bill has gone one stage further about the standing charge costs. I don’t presume to speak for Bill but our concerns I think are genuine and not just a “rant” about increased energy costs.

 

This is a really fair comment, @Evostick1968 and we’re sure you and @Bill Portland aren’t the only ones with similar feelings.

 

It’s something we’ve spoken to the pricing experts here at OVO about in the past as we’d love to be as clear as possible about how and why renewable electricity prices are also affected by rising wholesale gas prices. It gets fairly complicated but we’re hoping the following points (originally posted here) help to break things down slightly:
 

  • OVO Energy buys energy from multiple energy sources, including via power purchase agreements (PPA), securing energy for our members from wind farms. 
  • The price paid for electricity from wind farms (like that bought under our PPAs) is often closely linked to the market price of energy. 
  • The market price of electricity is set by the "marginal" generator of electricity at that point. This means the generator selling the last unit of energy to meet the demand in the market sets the price for all energy in that market. *We’ve been advised that it’s actually more complicated than this, but the principle applies.*
  • That means that, even though the cost of generating from a wind farm may be low, the energy is still priced at the cost of the marginal unit. 
  • Often, the cost of electricity is set by gas fired generation (gas being the "marginal" unit), so the price of electricity is closely linked to gas. 
  • So at the moment, the electricity we buy from PPAs is still closely linked to the price of gas, because the price of electricity in the market is set by the price of gas fired generation.

 

Just to reassure you both, we’ll also be sharing this thread with other teams within OVO, so thank you for contributing and asking some really important questions. 

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