Ovo Energy’s price hike shows hedging isn’t always bad for the customer

Ovo Energy is raising bills after Ukraine crisis
Ovo Energy is raising its bills after the Ukraine crisis pushed up power prices
Ovo Energy is raising its bills after the Ukraine crisis pushed up power prices (Source: Getty)

Independent energy supplier Ovo Energy announced today that it would be increasing its prices by three per cent for new and renewing customers, bringing the average annual dual fuel bill up to £1,028.

It blamed the price hike on an “upward move in wholesale commodity costs in April”, but bearing in mind SSE’s recent price freeze and Centrica’s quasi-price freeze, the announcement is a little surprising.

Ovo has proudly announced five consecutive price drops over the past year (and to be fair, its bills will still be lower than a year ago, even with this price increase), but why has it needed to raise its bills now?

The answer comes from the company’s hedging strategy.

The Ukraine crisis caused a small spike in gas prices in April due to concerns that Russia would cut off supply, but the big six tend to take buy gas futures contracts one year or 18 months ahead, meaning they are less exposed to these kinds of short-term fluctuations.

Jason Sharpe, Ovo’s customer service director, defended the company’s way of doing things.

“We don’t hedge ahead as much as the big six, so we can react a lot quicker to drop prices if wholesale prices go down,” he told City A.M.

This is true - if you’re an Ovo customer your energy bill will be far more closely linked to the current price of wholesale power than if you’re a customer of the big six, which is great when prices go down.

Whether this will be well-received, or understood, by Ovo customers reading today’s news is more negligible.

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