December Mark to Market equals 8 years of Price Cap profits

Written by Ian Barker
05 Nov 2021
Energy Market

At peak, the Mark to Market profit for *just* December was more than 8 years of profit allowed under the Price Cap.

We've seen lots recently on the impact of rising wholesale costs for energy suppliers. For those suppliers who have been able to hedge 3-6 months out they will also have a large theoretical value on their balance sheet as the energy is valued on a 'mark to market' basis.

The chart below shows that in October, for an energy supplier with 250,000 customers, the mark to market profit for December alone would have been ~£55m if the supplier had hedged six months out - such was the volatility of prices in the market. This is more than 8 years of profit allowed under the Price Cap.

Since October, we've seen a significant reduction in the wholesale forward curve - with a £30m reduction in the 'mark to market' in early November.

Prices easing off will stem some of the losses which are being incurred, which will provide some comfort for suppliers who continue to see value in the energy retail market.

Suppliers who are struggling with their cash flow however, may now face some hard decisions on whether they want to continue to operate in the market - or whether they want to try and start an 'orderly wind down' to exit the market.

Ian Barker

Ian shapes the BFY vision and inspires our team to bring it to life, while remaining central to complex client engagements in Strategy, Commercial, and Operations.

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