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Why are renewable energy costs increasing due to wholesale gas prices?


OVO says that it uses 100% Renewable Energy which means that no fossil fuel is used -  So why is the astronomical price increase of OVO energy related to the wholesale price of fossil fuels.

I can only assume that OVO energy is NOT 100% Renewable and as such been lying to all its customers.

I have noticed that with so many energy companies claiming to be 100% renewable I understand that there is simply not enough green energy available.  So who is telling the truth?

Any comments welcome - John 

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Best answer by M.isterW 8 March 2022, 12:22

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Hi there @design4p ,

I’m Blastoise186, an OVO member and a forum volunteer around these parts. Just so you’re aware, I don’t work for OVO myself so my comments are personal.

OVO does indeed make claims of 100% renewable electricity and this is valid based on current Ofgem rules. It’s actually impossible for any supplier to be truly 100% renewable at all times due to how electricity generation actually works, and it’s equally impossible to force the National Grid to only ever send renewable electricity down to your home.

Because of this, OVO’s Fuel Mix is made up of 50% renewables and this portion does indeed come direct from renewable sources. The rest does come from Natural Gas at the moment, which is disclosed in the OVO Fuel Mix as per Ofgem rules. I think OVO has plans to slowly rebalance the fuel mix over time to reduce the Natural Gas portion. The 100% renewable claim is still valid though, because OVO pays renewable sources to place the same amount of electricity back onto the National Grid as that used by every OVO member combined throughout the course of the year. It ultimately makes it balance out and is compliant with Ofgem rules as they currently stand.

As for the prices? Unfortunately, there’s no dedicated wholesale market for just renewable sources - there’s just a single market with both renewable sources and fossil fuels mixed together so OVO has to work with what’s available, but does try to choose the options carefully. This is one of the reasons OVO is affected by the same price rises as everyone else who doesn’t claim 100% renewable electricity.

There’s also the 30 odd suppliers that went down last year, which are adding costs to everyone’s bills. Someone has to pick up the pieces from that, and it’s ultimately all energy customers across all suppliers who end up with the tab.

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Sure someone will explain in better detail

Wholesale price effects everything unless you have bought fixed price contracts 
year/s ahead most suppliers dont or hold very little
 

So when wholesale price goes up unless they are tied into a fixed price the owner of said wind farm/solar farm sells his supply at wholesale price .
The wholesale price will probably be more than you are actually paying for it at the current time on a capped tariff 

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There's a single market for electricity. Energy providers, like OVO, generally don't own any generation capacity so they buy electricity from the market to sell to you and me.

 

When one type of electricity generation gets more expensive, which is what we're seeing at the moment, this pushes up the overall price of electricity because it's all bought on the same market. But... the fact that the UK has quite a lot of renewable electricity capacity is keeping the overall electricity price down a bit. If we didn't have that renewable capacity our bills would be even higher.

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Quite a lot of spare capacity exists on the Orkney Islands as well actually. They’ve already got far more wind power capacity than they could ever dream of having. Too much sometimes actually!

There’s also a 40KV Interconnector back to the mainland to share some of that power with the National Grid and also to top-up the islands on the rare days that there’s not enough power being generated. In theory, the Orkney Islands could provide even more super green eco juice to the rest of the UK, but that would require at least a 100KV Interconnector - and those are crazy expensive to build. And I’ve heard that no-one is willing to do that unless there’s a commitment to actually making use of it. And no-one is willing to build the capacity unless the Interconnector is being committed to.

Currently, adding any more generating capacity to the Orkney Islands would overwhelm them and they’re actually having to create ways to burn off some of the excess juice without shutting down any wind turbines for example.

It’s all factors like this which come into play as well.

Hi,

Thank you for all the replies so far.

Just a thought - With green energy generation prices linked explicitly to fossil fuel wholesale prices the green energy generator companies must be making enormous profits with such a large mark up in price.

Any community thoughts most welcome - John

 

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No worries, it’s what we’re here for. :)

Profit margins in this market are actually razor thin, regardless of what fuels you use in your fuel mix. It’s always been the case that only a tiny slice of the income an energy supplier gets can actually be used as profit, since at least 90% is gobbled up by all the various costs of running an energy supplier.

Sadly, even green energy suppliers are hit by this as well. If you wanted to start a business to get massive profit margins, the energy supply market is definitely not for you. Generation is where it’s really at!

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Yes, I suspect all generation companies, not just green energy companies, are making huge profits. I think the govt should introduce a windfall tax and use the money to support people in fuel poverty.

 

I'm should add that I don't think the energy suppliers (OVO, Octopus etc) are making huge profits. It's the generation companies.

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Hi,

Thank you for all the replies so far.

Just a thought - With green energy generation prices linked explicitly to fossil fuel wholesale prices the green energy generator companies must be making enormous profits with such a large mark up in price.

Any community thoughts most welcome - John

 

Some are that is for sure
Makes you wonder when you look at some other companies profit  with prices they give on export tariffs sure one pays 1p per kw .

I live out in the sticks and at the end of the line
we often have power cuts for a hour or two in winter during storms
This will make you laugh its now got to the stage i can run a generator (its on bio diesel/waste oil so much cheaper than diesel)
And i can generate my own electricity for substantially less than Aprils prices crazy times we live in

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The above conversations are very interesting and the take home message appears to be that the energy markets are at best inter-dependent no matter what energy sources you wish to use. The only safe option to ensure you can be protected from the external influences that create un-affordable energy costs such as war and greed is to generate your own at a rate that totally removes you from the grid. 

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After having an air-source heat pump installed in July 2021, we are all electric.  I think at this time the OVO/SSE takeover was underway. I told them that the gas account could be closed, and the meter removed. They managed to close my electric account instead of the gas, and it took me 5 months to sort this out. The gas meter was eventually removed after 10 months, but I was never refunded the standing charge. Because they had cancelled my electric account the direct debit didn’t work, and it refused my attempts to set up a new one.  i gave up trying to tell them, but eventually I think the system worked it out for itself. DD achieved, but an outstanding balance of around a £grand, I was never chased about it. 

The major factor in sorting this all out was that I was given a direct number to the SSE accounts department. Insist on getting this if you want to avoid a mental breakdown. 

Being now fully electric, I documented all my usage, past and present, on a spreadsheet. This is a must if you really want to understand where things are going.

My understanding is that the increases are all related to the wholesale price of gas. I went back and logged all the daily prices from the business section of the BBC news website.  The price relates to a therm of gas, and just under 30 therms equates to one kilowatt hour of electricity. 

At the beginning, ie 12 months ago, the cost was 11p per kilowatt. There were a few peaks and troughs over the year, but we are now back to the 11p mark, the average, over the whole year, 

I am advised by OVO that the cost of my electricity is to rise again in January, this represents a 64% rise since the same time last year.  I have looked around, but don’t see that there is anyone to report this to. Therefore, I’m going to let it ride and keep monitoring it. The average price per therm over the year was 280p, the closing price today (20/12/22) was 263p (or 9p per Kwh)

At the end of the day, there is always the small claims court.  

Merry Xmas

John

 

 

It's definitely confusing, can't disagree. It's possible that the increase is related to other factors such as infrastructure and maintenance costs.

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After having an air-source heat pump installed in July 2021, we are all electric.  I think at this time the OVO/SSE takeover was underway. I told them that the gas account could be closed, and the meter removed. They managed to close my electric account instead of the gas, and it took me 5 months to sort this out. The gas meter was eventually removed after 10 months, but I was never refunded the standing charge. Because they had cancelled my electric account the direct debit didn’t work, and it refused my attempts to set up a new one.  i gave up trying to tell them, but eventually I think the system worked it out for itself. DD achieved, but an outstanding balance of around a £grand, I was never chased about it. 

The major factor in sorting this all out was that I was given a direct number to the SSE accounts department. Insist on getting this if you want to avoid a mental breakdown. 

Being now fully electric, I documented all my usage, past and present, on a spreadsheet. This is a must if you really want to understand where things are going.

My understanding is that the increases are all related to the wholesale price of gas. I went back and logged all the daily prices from the business section of the BBC news website.  The price relates to a therm of gas, and just under 30 therms equates to one kilowatt hour of electricity. 

At the beginning, ie 12 months ago, the cost was 11p per kilowatt. There were a few peaks and troughs over the year, but we are now back to the 11p mark, the average, over the whole year, 

I am advised by OVO that the cost of my electricity is to rise again in January, this represents a 64% rise since the same time last year.  I have looked around, but don’t see that there is anyone to report this to. Therefore, I’m going to let it ride and keep monitoring it. The average price per therm over the year was 280p, the closing price today (20/12/22) was 263p (or 9p per Kwh)

At the end of the day, there is always the small claims court.  

Merry Xmas

John

 

 

The main thing is you are looking at prices to by gas today but suppliers have to buy gas way in advance. So you wont see the prices you are looking at now feeding through until later in the year unfortunately. Very little gas is purchased a day ahead. 

Not buying in advance is what caused all those energy companies to fail, which actually increased our bill by several hundred pounds. They got caught out with the sudden spikes in costs even before the war in Ukraine. It is not something anyone wants to risk going back to.

Given there are no new fixed rate deals currently, the government are in effect setting the price via the Energy Price Guarantee which is heavily subsidised.

We should hopefully see rates fall over summer, but be aware that rates are currently due to go up by circa 20% potentially once the government pull back on subsidising on the 1st April.

Cornwall Insight have a reasonable track record in estimating and are well respected. They regularly update their figures. The last one was early January

https://www.cornwall-insight.com/press/drop-in-wholesale-energy-prices-sees-price-cap-predictions-fall-below-the-energy-price-guarantee-for-second-half-of-2023/

It's definitely confusing, can't disagree. It's possible that the increase is related to other factors such as infrastructure and maintenance costs.

One way to avoid this issue altogether is by installing solar panels at the house, which would allow off grid living for beginners, more self-reliance and control over energy costs. It's important to do research and fact check the claims of energy companies to ensure that they are indeed using renewable sources. It's also important to note that the renewable energy market is still growing and scaling up, so the availability and cost of renewable energy may still fluctuate in the short term.

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Here’s a nifty website for National Grid Live.   https://grid.iamkate.com/  

It shows how much it costs to produce electricity, and by what fuel source. 

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Over the last 5 years, the price per therm of natural gas ranged from 10p to 89p. As of August 2021 the price increased beyond £1, and in October 2021 the roller-coaster really began. The whole of 2022 was a frantic year of ups and downs, a daily low of 129 in May to a high of 703 in August. I’ve looked around to find out why this was occurring, but it’s all a bit opaque. There was apparently some maintenance work going on in the North Sea rigs, and low reserve levels on the continent. 

As far as I can see, the Ukraine situation had little or no effect on the erratic pricing. I think the department for energy should set up an inquiry into the whole thing. Gas producers have made some tasty profits during the confusion. 

Things seem to be settling down in 2023, but I bet we don’t see any reductions in the cost of energy to the consumer.  

This website provides a monthly energy brief which is an easy read. 

https://www.catalyst-commercial.co.uk/

 

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Thanks for sharing these resources, @WF11SXL. The latest post was picked up by our spam filter but I’ve reviewed and everything looks legit and inline with our house rules.  

 

 

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Over the last 5 years, the price per therm of natural gas ranged from 10p to 89p. As of August 2021 the price increased beyond £1, and in October 2021 the roller-coaster really began. The whole of 2022 was a frantic year of ups and downs, a daily low of 129 in May to a high of 703 in August. I’ve looked around to find out why this was occurring, but it’s all a bit opaque. There was apparently some maintenance work going on in the North Sea rigs, and low reserve levels on the continent. 

As far as I can see, the Ukraine situation had little or no effect on the erratic pricing. I think the department for energy should set up an inquiry into the whole thing. Gas producers have made some tasty profits during the confusion. 

Things seem to be settling down in 2023, but I bet we don’t see any reductions in the cost of energy to the consumer.  

This website provides a monthly energy brief which is an easy read. 

https://www.catalyst-commercial.co.uk/

 

You can start a government petition if you feel passionate about the subject

https://petition.parliament.uk/

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Perhaps it’s not well known that the UK is only ~50% self sufficient in gas. Other sources include Norway. As with all other commodities of this type this is traded on the international markets and so the price follows those trends and not simply the price of production. 
I quite agree that this is a windfall time for energy producers but I’m not sure that the UK alone can do anything about this besides introducing extra tax levels from those making these profits which it has begun to do

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