Wholesale costs drive £84 reduction in Ofgem Price Cap level
Updated: Dec 1, 2020
Wholesale costs drive £84 reduction in Ofgem Price Cap level. However, fewer than 50% of tariffs are currently above the cap.
Wholesale energy cost reduction of £88 drove the bulk of the changes to the cap (with some unders and overs) and a notable £15 one off "wholesale adjustment" relating to the first cap period of the default tariff cap.
Fewer than 50% of current tariffs are higher than the Price Cap, driven largely by prepayment. However, more than a third of suppliers offering Monthly Direct Debit have their 'leading' prices at a level greater than the cap.
Hedge execution risk remains a challenge for those suppliers looking to hedge in line with the cap. Suppliers with shorter hedge tenors have benefitted from the recent falling market, but those with longer hedges have suffered from mark to market and cash calls.
The Price Cap allows for a theoretical Gross Margin of ~20%, which most energy Finance Directors would be very happy with right now.
Does a cap level of £1,042 (at new Ofgem TDCV's) finally give a price that both customers and suppliers would be happy with?