Retail energy price cuts ‘unlikely’ in the near-term, say Citi analysts

Energy market analysts from Citigroup have warned that heavy wholesale energy market losses over recent months are ‘unlikely’ to result in retail price cuts for UK consumers in the near-term.

In a research note Tuesday morning Citi reacted to a report in the Times newspaper which says utilities face mounting political pressure to cut bills, saying any decision on tariff changes is unlikely to happen before autumn.

Gas and power prices on the UK’s wholesale markets have steadily fallen since the beginning of the year – despite concern over a possible Russian gas supply disruption – to hit lows not seen in four years.

But Citi analysts say that the big six are unlikely to make changes to retail tariffs in the near-term due to weak financial results from the big six over the first quarter and forward hedging positions.

“Waiting until the autumn at least to assess latest weather and demand trends seems more likely, but we do expect this scrutiny of the industry to continue,” the Citi note said.

Utilities are understood to buy gas and power on the open market around two years ahead in order to ‘hedge’ against market risk. But because 2013 saw pricing levels sustained at elevated levels following a long, cold winter the recent price slump may not have taken full affect on the market position of utilities.

In addition, utilities such as SSE and EDF Energy have offered fixed term deals extending years in advance which not only protect consumers from rising market prices but could also prevent losses being passed through.

When SSE announced their current price freeze to 2016 they did comment that their ability to reduce prices if wholesale costs continued to fall would be limited due to forward hedging,” Citi analysts, “however this is unlikely to reduce the pressure from politicians or the regulator.”