Energy prices have been in the news a lot lately, with over 52 million customers in the UK who currently purchase energy from one supplier, or multiple suppliers it is no wonder that when utility companies hike their yearly prices up, there is uproar from the public.
Whilst justified, there are often key factors involved with this movement from utility companies in the UK. One is a rise in wholesale market prices, and the second is often based on a suppliers overall pricing/purchasing structure on the market.
If for example a utility company purchased energy both gas and electric on the market long, rather than short. They are committing to a price at that moment in time, but betting that in the future those prices will not go above what they have paid, and won’t go below what they have paid for on the wholesale market.
If this happens, a utility company can sacrifice profits and make huge losses. In this event, a utility company can expect to increase it’s overall pricing strategy because a supplier functions like any other business in the world. It functions on profits, if it does not have these then they simply do not have a business.
One solution has been for suppliers to freeze prices in the market for a minimum of two years, and the other is for suppliers to lower their prices overall.
Again there are varying problems with this, one being that freezing prices does not allow the new suppliers to differentiate themselves on the market and we return to the old days of the monopoly of utilities.