What's the point in having an energy price cap that fluctuates?

[FieryMexicanClive]

What kind of a cap is that? If they just raise it whenever companies want to put up prices?

It’s not companies prices though is it, it’s the price of energy. British Gas aren’t deciding to increase the base price

its an essential item, but the UK do not have control of global prices. So you can’t keep it at one price

They're only allowed to change it 4 times a year and often it goes down.

You could also avoid paying the price cap prices by fixing, which is almost always cheaper and if no cheap fixes are available, you can stay on the price cap while you keep an eye on things.

But the sellers and buyers are the same companies, just different subsidiaries. So yes technically British Gas isn't deciding how much gas costs, but Centrica, part of the same group, is.

I presume you think it should be a fixed value and stay the same forever so you know what your are paying? That’s not how it works or what it’s for. It’s to protect you from wild fluctuations in the wholesale cost of gas which is dictated by the global market.

How do you think it should be managed?

To some extent electricity yes, but not gas.

Well apart from renewable electricity, Octopus aren't a seller/refiner and they're one of the biggest retail suppliers. The high prices are due to outside factors, such as wars in Ukraine and the Middle East. Plus also increases in the NMW and employer's NI contributions. The profit per customer is tiny, a few pounds a year and some suppliers are currently losing money.

When did you last sign up for a fixed contract OP? That protects you from a lot of the price rises unless you're unlucky with timing and prices are still way below the months following the start of the war in Ukraine.

Centrica doesn’t decide what the price is. That is determined by the global market. Natural gas is a global traded commodity.

Centrica is selling gas on the open market. Whoever wants to buy it, including its own subsidiaries, must pay the going rate. There may be times when the selling price is lower than what it actually cost them to produce it, but that's tough luck. There's no price cap for them.

Someone should explain it in Trading Places terms.

Yeah yeah. Globally traded to buyers that are subsidiaries of your parent company.

Boy, I bet they really push for bargains, eh.

It can't be managed, the entire market is bent. But it's a waste of everyone's time pretending the UK can control it with some kind of Maginot esque cap that isn't actually a cap.

If you think you could do it better, you could always set up in gas extraction, electricity generation or commodities trading.

The cap is based on the average wholesale price over a defined 3 month period. Plus operating costs. Then the suppliers offer fixes which are usually cheaper than the cap, backed up by a contract to purchase energy at a price sufficiently low so they can sell it at a profit. So you can pay less by monitoring available deals and when you find one, you're protected from price changes for up to a year. What you move onto depends on market conditions when your deal ends.

If you're unhappy with energy price increases, you'd be best talking to all those world leaders who've started wars that have disrupted supplies and tipped the supply/demand balance out of favour.

I’m a bit confused really OP- you know that centrica aren’t - well creating- oil and gas?

The other point you're missing is that the energy price cap predates the current world political instability. It used to be that suppliers would have a high standard tariff, which you were on unless you signed up to a fixed deal. You then moved onto the standard tariff when the deal ended until you moved onto another one.

Suppliers increased their profits by quietly raising the standard price while offering fixed deals to consumers who would play the game by hopping from deal to deal. The price cap was brought in to protect people who didn't do that, by limiting the price they could pay. But there's still the expectation that you do what you can to help yourself, by moving to a fix if one cheaper than the price cap is available.

Buyers of gas within a company that also sells gas are almost certainly bonused on getting the best price for their gas (whether that's from the company or the external market),

The price is capped to prevent the price being out of control. However they need to allow a profit from customer energy. Remember when all the energy companies went bust and everyone was moved? That pushes up the price overall too for everyone. If the price rises the cap may have to go up too.pity we can’t take advantage of the EU bulk purchasing anymore and have to negotiate our own prices.

I'm with octopus on a fixed tariff so I don't get hit so bad with fluctuations. I think there are plans afoot for dynamic pricing in the energy field. There was a blog about it recently.... hopefully it shouldn't be too far away.

Nah mate, that's not how it works. Plankton. Innit.

Lol

Good discussion, thanks.

It's about as useful as "almost certainly", that's for sure.

Not really, but you are clearly here to be a chess-playing pigeon, so TTFN.