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The big six are unable to match the Northern Ireland utility’s price cuts
Power NI’s announcement last week that it will cut electricity prices by 9.2 per cent from 1 April stands in stark contrast to the UK’s big six suppliers, which have so far only reduced their gas tariffs in response to falling market prices.
But Power NI’s cuts not only draw attention to the absence of similar cuts from the big six – they go some way to explaining it.
Market participants told Utility Week that the reasons Northern Ireland’s largest electricity supplier is able to offer a cut of £50 a year for households and £200 a year for small businesses are the same reasons those operating in Great Britain are unable to.
Stephen McCully, managing director of Power NI, told Utility Week that the company is unable to hedge its wholesale activity as far in advance as the big six energy suppliers because it operates in the significantly smaller Irish single electricity market (SEM).
“In Northern Ireland, Power NI buys wholesale electricity from the all-island pool known as the SEM, where opportunities to hedge over a longer time horizon are more limited. Thus, we have been able to take advantage of, and secure, lower wholesale electricity prices earlier and are able to pass on the savings to our customers,” McCully said.
Also, Power NI is exempt from the government’s rising carbon price floor which is set to move from its current rate of £9.55 a tonne of carbon to £18.08 a tonne from 1 April.
A trader told Utility Week that for players in the UK power market this would mean “a jump of around £3 on a gas-fired power plant cost and around £8 on a coal unit, per megawatt-hour”.
Power NI’s cuts come amid strong political pressure on the big six to pass on lower costs as a result of historically low wholesale gas market prices.
Most electricity in the UK is produced by burning fossil fuels, with gas generation representing about 40 per cent of electricity demand every year, so electricity prices are firmly aligned with the fall in wholesale gas markets.
Although the big six gas tariffs have seen modest cuts, none of the largest UK suppliers has passed on lower electricity prices yet.
Jillian Ambrose and Lois Vallely
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