- UK hit by energy crisis due to rising bulk gas prices
- This is likely to increase the bills of many households in the next few months.
- We answer the most common questions consumers ask
Homes face huge increases in energy bills as the rising cost of bulk gas continues to create chaos in the industry.
Many small energy suppliers are already expecting business to close in the near future and the government is unwilling to offer state-backed loans to help businesses stay afloat during this crisis.
One of the main issues facing these providers is the low, fixed rate prices they have offered to consumers that they can no longer retain as wholesale prices have increased dramatically.
It is not yet known how long this will continue, but experts warn that the number of suppliers in the market could drop from 55 to as low as ten by the end of the year.
To help you understand why prices have risen, how it will affect you and what you can do, This Is Money has answered your most common questions.
Families across the country may see their bills rise due to the energy crisis
1. Why is there a shortage of gas?
The crisis is triggered by a number of factors, but is ultimately due to a decrease in natural gas production as well as an increase in demand.
Demand has picked up faster than expected after the global pandemic, but reserves have been slowing this summer as supplies from Russia are lower than predicted.
Notably, the government said, there is also high demand in Asia for liquefied natural gas (LNG), a natural gas transported globally by ship which means less LNG reaches Europe than expected.
Conditions have not helped, with conditions being longer and cooler than usual until last winter (2020 to 2021).
Renewable sources such as solar power and wind have also produced less, creating a greater reliance on gas.
2. What is the average increase in the prices?
Oil & Gas UK, an industry group, said wholesale prices of gas are up 250 per cent since January.
Costs have also increased by 70 percent since August – highlighting the sharp rise in prices.
As wholesale costs rise, energy firms have to pay for them and as a result, most of this cost will be passed on to consumers.
Many smaller energy suppliers have already folded in with the expectation of closing many more businesses.
3. Why does this mean consumer bills will increase?
More than 22 million households are connected to the gas grid and high gas wholesale prices have led to an increase in wholesale electricity prices later this year.
Suppliers need to recover their money to stay afloat and this often comes from customers.
While many major energy suppliers buy most of their bulk supplies several months in advance, protecting them and their customers from short-term price increases, others have not.
Therefore, many small energy suppliers failed to purchase enough bulk energy to supply their customers, often at the lower rates they had promised.
As a result, they either have to bear the costs, if they can, but if not, they may have to close the trade.
However, customers will not see a dramatic increase in bills and those with a certain deal will not see any change until their deal expires.
Customers who may see an immediate increase are those whose fixed tariffs are now expiring because they will have to find a new deal – many of which are much higher than in previous months.
Justina Miltiente, energy policy expert at Uswich, said: ‘Gas-fired plants generate a lot of electricity, which means electricity supplies have had a similar impact.
‘If you’re on a certain deal, you’re protected from a market bounce, at least until your current deal expires.
“Energy price cap for customers on variable tariffs also means that the cap will not increase as much as the wholesale price, but will be reviewed early next year, so customers living on variable tariffs should be vigilant and keep an eye on it.” Deals are available in case prices go up again next year.
4. What happens to customers whose supplier has fallen?
In the past five weeks, problems in the industry have led to the collapse of five suppliers.
For those with a supplier that has collapsed, they are advised by Offgame to stay and not turn away. The regulator will find a new provider to consumers through a supplier of last resort system.
For example, Utility Point customers, who learned last week that the firm had collapsed, have now been told they will automatically move to EDF.
bulb wants bailout
Bulb, the sixth largest energy supplier in the UK, is seeking a bailout to stay afloat.
According to the Financial Times, the provider, which provides energy to 1.7 million customers, is working with financial advisory firm Lazard to secure new sources of funding.
It said while a bailout may come as part of a joint venture or as a merger with another firm, another option could be a cash injection from investors.
However, their new supplier will place them on a special ‘deemed’ contract which means a contract they have not opted for and not the fixed deal they had before.
Deemed contracts could be more expensive so bills could go up but Offgame said it would try to get the best possible deal for customers.
Often, deemed contracts can cost more because the supplier takes on more risk, for example, they may have to purchase additional bulk energy at short notice for new customers.
Hence, they charge more to compensate for it. As wholesale prices continue to rise, these contracts are likely to become costlier.
An Offgame spokesperson said: ‘We are aware that the current situation with high wholesale energy prices is putting pressure on customers and …