Wholesale Energy Costs

The dramatic rise of electricity costs throughout 2021, driven by high gas prices and the subsequent demise of many UK energy suppliers has put wholesale energy pricing bang in to the spotlight.

The wholesale cost of electricity is the price that suppliers (like Octopus and all others) have to buy the energy at. They then add a variety of costs (distribution fees etc) before arriving at a price they then charge the end customer.

Obviously the price they sell at needs to be higher than they bought at (plus fees) to make a profit.

Most energy suppliers buy their electricity well in advance, very likely many months and months ahead and at an agreed fixed price. This is called hedging. By buying at an agreed price they can then pass this set price (plus fees etc) back to their customers on fixed tariffs.

The Simply Switch website has an article here on hedging if you’re interested: https://www.simplyswitch.com/business-energy/guides/business-energy-hedging/

The apparent problem with the failing UK suppliers in 2021 was that they didn’t sufficiently buy in advance and were exposed to the rapid speed at which wholesale costs rose. i.e., they were forced into having to buy electricity for a higher price than they’d agreed to sell it back to the customer. That business model wouldn’t work if you were buying and selling apples and oranges, let alone electricity.

You can see from this graph how the wholesale price of electricity has changed over the past 2 years.


Indicative Daily Average Wholesale Price (last 2 years)


How Agile tariff shows point in time current state of play

The beauty of the Octopus Energy Agile tariff is that it rapidly shows any swings in the electricity market.

This is because the daily Agile pricing is derived from the day ahead wholesale price of electricity.

https://octopus.energy/blog/agile-pricing-explained/

So the formula for each 30 min slow is: wholesale cost x 2.2 + (add 12p if 4pm to 7pm peak) + VAT

If the price of the calculation exceeds 35p, then for Agile purposes Octopus cap it there at 35p.

As keen observers of Agile have seen throughout 2021, the amount of times that Agile has hit the 35p cap has increased throughout the year. To the point in late 2021 where full days are completely topped out at 35p.

Agile Outgoing (the price given by Octopus for your exported energy back to the grid) has its own calculation but doesn’t have any upper price cap. Hence we’ve seen some outgoing 30 min periods in excess of £2 per unit in the latter parts of 2021.


Calculate the Agile price yourself

You can do the Agile calculation for yourself.

Pull a 30 minute slot from day ahead pricing via Epex:

https://www.epexspot.com/en/market-data?market_area=GB&trading_date=2021-12-08&delivery_date=2021-12-09&underlying_year=&modality=Auction&sub_modality=DayAhead&product=30&data_mode=table&period=

  • Say the price listed for a 10am slot is £123/MWh, you’d first need to divide that by 1000 to convert it to pennies and kWh.
  • £123 / 1000 = £0.123 (12.3p)
  • Times that by 2.2 = 27p (this is the standard Agile multiplier)
  • Because it’s not 4pm – 7pm there is no more to add (otherwise add 12p at peak times)
  • Then add VAT at 5%, so 27p x 1.05 = 28.4p

Using these calculations, any wholesale price greater than the following hits the 35p Agile limit

  • Off-peak wholesale: 15.1p (£151/MWh)
  • Peak (4pm to 7pm) wholesale: 9.7p (£97/MWh)

So the key to being able to do all these calculations is getting hold of the wholesale pricing data.

Note: There is the whole UTC/BST/GMT thing going on with the wholesale pricing, so you’ll find at many times of the year that the raw data from Epex is an hour out from UK (and Agile) pricing.


Getting hold of wholesale pricing data

I have long been interested in the relationship between the Agile tariffs and the underlying wholesale cost, so I contacted a couple of providers to see how much it would cost for me to buy this information and data.

Both suppliers I contacted came back with quotes around the same price, something in the region of £1000 per year.

Bearing mind this energy-stats website is a just a geeky hobby to me, that was way out of my reach.

The two main suppliers of wholesale pricing data are Epex and Nordool.

Epex provide a daily summary screen as linked to in the Agile calculation above, but you can’t screen grab the data as that is against their rules. Anyway, that would have been a royal pain to code and sort, I’d have wanted an API or similar.


Reverse Engineering the wholesale pricing from Agile

So as we already know the end result (Agile import and export pricing) of which I’ve got years of data for now, perhaps I could apply the formulas in reverse to get to an indicative wholesale price?

Luckily the very clever Guy Lipman has broken down the formulas for each DNO region which really helped me try and work all this out.

You can find his great work here: https://www.guylipman.com/octopus/formulas

Because of the high cap (35p on Agile) and low cap (0p on Agile Outgoing) I have had to use a combination of both tariffs to come to the end result.


More Graphs and Dashboards

Below are a bunch of graphs showing indicative (reverse engineered) wholesale cost of electricity and the relationship with Agile Import and Agile Outgoing (export) tariffs.

I have run the formulas against all the pricing going back to the start of Agile Outgoing, which was May 2019.

I have also been able to write a daily script that now runs alongside the Agile data pulls I make from the Octopus site. So these wholesale prices and graphs should get updated every day now.

The graphs on this page are shown with fixed timeframes. But if you want to play with the data and see more time periods, head over the Dashboard feature.

https://www.energy-stats.uk/dashboards/

DISCLAIMER: These figures are provided on a best endeavours basis with no guarantee that they are completely accurate. Hence they will always be referred to as ‘indicative wholesale pricing’.

Hope you find some of this interesting and helpful.


Indicative Average Wholesale Pricing for each 30 minute time slot (last 30 days)


Indicative Wholesale, Agile Import and Agile Outgoing (latest 48 hours)


Indicative Wholesale, Agile Import and Agile Outgoing (last 7 days)


If you find this information useful and are thinking of joining Octopus Energy, please consider using my referral code to help support running costs of the website.

Using this referral code will gift you £50 of free credit after signup: https://share.octopus.energy/linen-pearl-869

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We can also be found on Twitter, please follow us @energystatsuk for daily Agile tariff pricing graphs and summaries.

Also, be sure to check out our Dashboard, Download Historical Data and OctoChargeCalc features to help you decide whether these tariffs are the right fit for you.

Note: The past performance of energy pricing is not necessarily a guide to the future.