Wholesale gas prices at 'year low' as energy firms hike rates

Eon, which has about 5 million customers, became the latest of the big six energy suppliers to increase its bills when it announced on Friday that prices for gas and electricity will rise by an average 18.1% and 11.4% respectively from September 13 (see the Eon announces price rises news story).

Key Points

• Wholesale gas at lowest price of year

• Wholesale electricity prices also down

• Same day Eon announces consumer hikes

But when Eon made the announcement, wholesale day-ahead gas prices had dropped to their lowest point of the year, at 49.9p per therm, and electricity prices sunk to their lowest point two days previously, at £45.2 megawatts per hour.

The supplier follows British Gas, Scottish Power & Scottish and Southern Energy in announcing price rises in recent weeks, which the industry has blamed on a 30% rise in wholesale costs since last winter.

There have been repeated calls for the sector to be referred to the Competition Commission amid allegations of unfair rises.

A series of events created a "perfect storm" for energy prices earlier in the year, after the Japanese earthquake and tsunami put nuclear reactors out of action, unrest in the Middle East drove up energy prices, and Germany decided to exit nuclear power.

But gas has fallen by 22% and electricity by 19% since their March peaks amid the slowdown in the global economy.

The companies buy their wholesale gas and power a long time in advance but the price of buying ahead is also at five-month lows and still falling.

Expert opinions

Omar Rahim, of energy market analysis site, Energy Trader Daily, says: "The wholesale electricity and gas markets have fallen consistently since March, this is not something that has happened suddenly.

"It's ironic that on a day when suppliers are again raising their prices, gas prices are at a year low and electricity prices are also at multi-month lows."

Energy companies have recently been urging customers to fix their energy prices for the next year to shield them from further rises but if commodity prices continue to drop it could mean that millions are locked into high tariffs.

Andrew Horstead, risk analyst at energy specialist Utilyx, adds: "If wholesale prices continue to drop, the decision to put up energy prices for households is going to be a difficult PR pill to swallow."

The average Eon dual fuel bill for a customer paying with direct debit will rise by 15.2% to £1,190 from next month.

Eon says almost 600,000 were unaffected by the rise, including its most vulnerable customers on WarmAssist tariffs.

It is the second price rise by Eon this year after it increased electricity tariffs by 9% and gas by 3% in February (see the Eon to raise prices news story).