Wholesale Energy Prices – The Reason for Their Importance and Increase

According to statistics, wholesale energy prices have increased fivefold this year. This rise means that our electricity rate is going to increase as well. Let us look at why wholesale prices are important and why they have increased so much.

Why Are Wholesale Prices Important?

A wholesale market is a place where suppliers buy energy that is then supplied to customers. The cost of purchasing wholesale energy makes up a large portion of typical household energy. This means that changes in the wholesale market rates have a direct impact on our monthly bills.

Recently the wholesale energy prices have increased so much that energy suppliers have no other option but to increase their rates. In order to find out more about how wholesale energy prices impact your monthly bills, read more.

Why Has There Been A Major Increase In Wholesale Energy Prices?

The sudden increase in wholesale electricity prices is due to the rising gas prices, which have drastically increased in the past few years. There are also other contributing factors, including:

  •         British gas storage has decreased due to their higher consumption in the past year.
  •         Gas storage levels approaching the winters are a very important indicator of what the delivery price will be when the daily production is not enough to meet the demand of the harsh cold months.
  •         There have been unexpected cold temperatures in the UK this year, so gas consumption has increased.
  •         Usually, gas storage replenishment starts in April, but due to climate change, April was also cold, which depleted the gas reserves more than expected. With only September left as the gas replenish season, the British storage sites are lower than would be seen this time of the year.
  •         European pipeline deliveries have decreased this year which has increased the prices.
  •         A large portion of the gas in the UK is supplied and delivered through pipelines that come through Europe, and there has been an increase in the demand for gas across the whole continent.
  •         The decrease in wind generation across Europe in 2021 has increased the demand for electricity-generating power stations.
  •         The price of CO2 emissions has doubled since last year, and this has made gas burning more appealing for power generation instead of coal burning. Using gas reserves to generate energy has further increased the demand for gas.

Do These Increases Also Have An Impact On Renewable Energy?

Renewable energy is the future as energy production from finite sources is not stable, and fossil fuels are likely to run out soon. Renewable energy sources include wind, biomass, solar, and water.

Many energy suppliers now supply renewable energy as well. However, the cost of buying renewable energy also increases when there is an increase in gas prices, as the majority of the homes in the UK have not switched to renewable energy.

In a nutshell

We cannot stress enough the importance of switching to net-zero carbon emissions and renewable energy as a source of heating and powering homes across the UK.

When more electricity is generated from renewable sources, the UK will become less dependent on gas and less vulnerable to fluctuations in gas prices. 

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