Prices drop on the wholesale energy market

Energy companies have consistently defended their price rises as being the result of rising wholesale prices. The latest price falls may put pressure on the energy suppliers to lower household bills.

An unusually mild winter has depressed energy consumption across the country, while record supplies of wind power and a glut of gas in storage have combined to apply heavy downward pressure to markets since the beginning of the year.

"It is too early to rule out a late-winter cold snap," says ICIS market analyst, Jamie Stewart. "Even if this were to happen, however, supply is in good shape and is geared to cope. Energy traders have recognised this, and contracts have been heavily sold on the forward market.

"But as we have seen in recent years, extreme cold weather has developed a habit of biting the UK very late in the winter. The high-risk period is far from over."

On the UK power market, the key contract for power to be delivered this summer traded at £48.00/megawatt hour (MWh) on Wednesday – the product's lowest ever traded level. On Tuesday it closed at £48.40/MWh, just £0.30/MWh above what would have been an 18-month low, according to ICIS data.

While at Britain's natural gas market, the corresponding product closed on Tuesday at 62.55 pence per therm (p/th), its lowest since 1 October last year. Had it fallen further it would have been the lowest close since New Year's Eve 2012.

Any fall in energy costs would be a further boon for UK inflation figures, which in the year to December fell to the government's 2% target for the first time since November 2009. Spiralling energy costs have been cited as a major driver as the UK has struggled with inflation in excess of 5% in recent years.