Energy Supply Margins At Current Prices
7 December 2009
By Graham Shuttleworth
In this report for Energy UK, a NERA team led by Director Graham Shuttleworth examines the margin between wholesale and retail energy prices and finds that, although wholesale energy prices have fallen recently, gas and electricity suppliers are earning very little margin on their sales to domestic customers. NERA's analysis builds on research previously conducted by energy regulator Ofgem by using data extracted from public sources or supplied by the energy companies. Ofgem had estimated the margin between the domestic customer bill and some of the costs of a notional energy supply business. At the request of Energy UK, NERA updated Ofgem's method to current conditions and extended it to include a more complete set of costs. NERA relied on data provided by Ofgem and other public sources, used aggregated information from the six major energy suppliers, and constructed a simple model of short-term trading in order to estimate the costs of matching energy purchases to the variations in consumer demand.
Mr. Shuttleworth discussed NERA's work for Energy UK on the 7 December 2009 edition of the BBC's Today Programme. The full report can be downloaded here.
