Low winds over December are expected to lower Good Energy’s full year profits by a further £3 million.
This comes after the energy supplier issued a trading update on 25 November detailing how Good Energy was expecting to incur unforecasted costs of up to £1 million through the Renewables Obligation and feed-in tariff levy mutualisation processes and £1.5 million of additional commodity costs from a higher number of business and domestic customers than expected.
In today's (22 December) update, it detailed how the industry has experienced a sustained period of low wind since 16 December, which is expected to continue until Christmas, impacting the company’s full year profits. Current wind levels are around 33% of seasonal norms, with the impact of this shortfall to be material across the industry, Good Energy said.
Power prices have also risen since last month’s update, with power and gas prices on a day ahead basis for December on average 36% and 35% more expensive than November at £256/MWh and £2.71/therm respectively.
Q1 2022 baseload power and gas prices at £489/MWh and £4.39/therm are 102% and 89% higher respectively, with the increases in nearer term power and gas prices now “feeding very strongly” into 2022/23 seasonal contracts.
The high power and gas prices seen over the past few months has put increasing pressure on energy suppliers, with 27 suppliers collapsing in 2021. Of these, 25 have shuttered since the gas price truly began to spike from August.
Ofgem has therefore announced that energy suppliers will need to undergo financial stress testing to prove their resilience, with the regulator to agree on an improvement plan for companies to address concerns if any weaknesses are found.
Good Energy said that the colder and calmer weather conditions, alongside higher customer volumes and elevated market prices throughout the winter will require additional working capital. As such, it is actively engaged with its financing partners to meet the short-term working capital requirements.
"While we have a very strong track record in forecasting and hedging, these unparalleled price hikes, together with the very low levels of churn within our customer base, means that we require far greater working capital to trade similar volumes at these stratospheric price levels," Nigel Pocklington, chief executive officer of Good Energy, said.
The energy supplier’s financial performance for November was in line with expectations, due in part to its first domestic standard variable tariff (SVT) rise, which became effective on 1 November. This provided some mitigation against the low wind month, when wind levels were 18% below seasonal norms.
A second SVT rise of 30% is also to occur from 17 January, which will help absorb some of the higher input costs the energy supplier is experiencing. Indeed, in November’s update, Good Energy highlighted the impact of incurring additional commodity costs from a higher number of business and domestic customers than expected, with this is expected to continue into the first quarter of 2022, at sustained high commodity prices.
The energy supplier is to continue to monitor the need to increase prices further, given its exemption from the price cap.
"No one in the industry is immune," Pocklington added. "We urge the UK government to support the industry at large in navigating these short-term challenges to protect bill-payers and those that serve them."