How are my prices put together?
Your electricity prices are made up of two elements:
The day to day price of electricity on the UK’s wholesale markets driven by the cost of producing electricity and confidence that supply can meet demand.
The cost of production
Generators need to sell the electricity they produce at a price that covers their operating costs. Different generators have different costs. So, the changing mix of generation sources (gas, coal, nuclear, wind, solar etc) that make up the UK’s electricity supply greatly influences the prevailing wholesale market rate. Fuel costs are a far higher share of operating costs for power stations that burn coal and gas than for nuclear or renewable generators. That’s why the price of coal and gas has a direct influence on the cost of electricity. The cost of these fuels is in turn influenced by other markets such as oil (to which gas is directly linked) and foreign exchange rates as the UK imports a good deal of the gas and coal it needs.
Supply and demand
As with many commodity markets, wholesale electricity prices tend to fall when supply easily meets demand. However, the margin between supply and demand is getting tighter as old power stations close. So, wholesale prices can shoot up when demand for electricity rises, for instance during economic growth, cold spells in winter or heat spells in summer and squeezes the margin of available supply.
CCS Weekly Market Report
Every week, the CCS Trading Team put together a blog to explain the factors influencing the Wholesale Energy market, and what they're looking out for.
Learn more about the factors influencing Wholesale energy costs
Here’s EDF's Energy Trader James Chaplin giving you a quick run through of the factors that influence the wholesale price of energy - what they are, how they work and what to look out for.