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Will Brexit affect my energy bills?

30 Jan 2020

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After a three year saga of political twists and turns, extended deadlines and all sorts of endless chatter we are finally nearing the finish line of our exit of the EU on the 31st January.

This is a historic moment clouded by uncertainty and we don’t know everything that is going to happen after we leave. We do however know a thing or two about the energy market, so we can at least let you know what is likely to happen to your energy bills.

We can break down your energy prices into four main sections - wholesale costs, network costs, environmental obligations and ‘other costs’.

Wholesale Prices

The wholesale energy market is a volatile one and prices change quite frequently throughout the day. Fluctuations are caused by a number of factors such as weather, customer demand, global energy production, and currency fluctuation.

It’s a tough job to keep up with it all (luckily we’re really good at it, that’s why we’re one of the cheapest ;) )

Outfox buys your gas and electricity from the wholesale market in advance to reduce the the impact of this highly variable pricing. That’s why we are able to commit to prices on fixed tariffs and keep prices stable for our flexible tariff customers.

When it comes to that point in time where we have to buy some more energy a year ahead, only then will we have to factor in the movements in the wholesale prices (either up or down) into the new prices we offer.

The UK imports 55% of its energy from Europe and the rest of the world - this is where the problem may lie, through changes in the exchange rate.

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Simply put, if the pound devalues by 10% then the cost of energy will go up by 10%. Exchange rates are likely to change after Brexit, for the worse. However, with the nature of the currency markets being risk-averse, the pricing of the pound has already been taken into account in the current currency market.

Yes, we know, we get all our energy from UK sources. So why should we care about import prices?

Well, wholesale power is traded as a single, homogenous commodity. All this means is that aside from the environmental impact to generate it, all the electricity coming down those wires are all one and the same. This means that regardless where they come from, be it fossil fuels (booo!) or renewable sources (hooray!), the prices of these different energy sources are tied permanently.

Other factors that may affect wholesale prices……

Emissions Trading System

The UK, along with every other member state, is part of the EU Emissions Trading System (ETS). The ETS was formed to limit the total CO2 emissions produced by the whole EU and everyone gets “allowances”, each worth one tonne of CO2. European electricity generators must buy the allowances to match their emissions or pay a large fine.

In the case of a hard Brexit, the UK will have to adopt its own emissions trading scheme (with a Carbon Emissions Tax being the likely replacement). This tax and the level at which it is set will determine how it may (or may not) affect wholesale energy prices.

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Energy ‘Interconnectors’

Our imported energy comes to us through wires coming from France known as ‘interconnectors’ and are regulated under EU legislation. All the countries under this legislation form part of an internal energy market. A no-deal Brexit would put the UK at risk of being outed from this group and there’s a chance that the importing of our energy could be disrupted. This could lead to a rise in energy prices and increased volatility in the wholesale market.

It’s all scary stuff but thankfully it’s in the best interests for both parties to keep the interconnections running as usual. The government has even pledged to keep the m running under EU regulation to avoid any disruption.

Unfortunately, this is a short term fix and there will eventually be tariffs imposed on UK energy imports which will cause wholesale prices to rise. These won’t come straight away as the UK has volunteered to suspend any tariffs on power imports for 12 months.

A couple of other things that make up your energy costs, *spoiler* these won’t be affected by Brexit.

Network Costs

Our gas and electricity are all transported by British owned wires and pipes. On top of this, the cost of maintaining and upgrading them are managed by Ofgem, on behalf of the UK government. It’s all in our hands so unlikely to be any impact from Brexit.

Environmental and Social obligations

Developing UK renewables, supporting efficiency initiatives and assisting vulnerable customers incur significant costs. Many of the schemes in place are set to align with international targets and the UK might withdraw their support post-Brexit. So far there is no news regarding any changes to these schemes so the likelihood of any Brexit-based impacts are low.

So....what the fox will happen to my bills after we leave the EU?

If you are on one of our fixed price tariffs then your rates are locked in until the end of your contract. If you want to you could switch to another fixed price tariff as we don't penalise for leaving a contract early or switching over to another tariff.

If you are on one of our flexible tariffs, your rates are determined by wholesale prices and the other costs mentioned before. These may or may not be affected by Brexit (we will always let you know a month before regarding any price changes) - but for now we do not know. If you prefer more certainty then remember, you can always switch to one of our fixed tariffs and secure your prices for the next 12 months.

By I.CAB