Price hikes looming, buyers warned

28 November 2002
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28 November 2002 | Liam O'Brien

Purchasers are being warned to brace themselves for electricity price hikes as the buyers’ market that has prevailed for the past 18 months draws to an end.

Earlier this year prices hit a record low of £15-16/mWh as the New Electricity Trading Arrangement (Neta) ushered in an era of supplier competition for business customers.

But analysts say the buyers’ market is turning into a sellers’ market. Recent rises to £17-18/mWh are likely to continue as factors combine to curtail supply.

Andrew Horstead, European reporting services manager for energy analyst John Hall Associates, said: “We are unlikely to see the £15-16/mWh that we saw earlier this year. That is going to be the market’s lowest point.”

The collapse of energy supplier TXU Europe, uncertainty about the Drax power station, financial problems at nuclear generator British Energy, and the mothballing of capacity will lead to less electricity on the market and a rise in prices.

British Energy, which supplies about a fifth of the UK’s power, announced in September that it needed to cut costs by £280 million a year to stay solvent, blaming falling wholesale prices. And according to John Hall Associates, wholesale prices for electricity were 17 per cent lower in October compared to the same time a year ago.

Martin Rawlings, deputy chairman of the CIPS energy committee and managing director of consultancy Energytrak, said the rising prices were a response to the reductions in capacity.

It could mean a 10 per cent increase in electricity bills for business users from 3.5-3.6p/unit to 4p, he added. For a typical small company with an annual bill of £12,000, this would be a hike of more than £1,000.

“The generators have started to close stations,” Rawlings said. “Overcapacity is beginning to disappear and prices are going up.”

Rod Sinden, co-founder of the Local Authority and Government Utilities Resource, which buys £70 million of electricity on behalf of local government, said: “Since the British Energy fiasco, prices have started to slowly harden. The oversupply situation is going.”

He also said that suppliers, such as British Energy, PowerGen and Innogy, are not taking up forward tenders for business in anticipation of rising prices.

SMnov2002

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