Households are facing much higher winter energy bills due to a global surge in wholesale power and gas prices.
The costs are also putting pressure on the suppliers – particularly smaller companies – who are unable to pass on the increases to their customers.
Four firms have already folded and there are fears that more could follow.
Business Secretary Kwasi Kwarteng has said “well-rehearsed plans” are in place to ensure consumers were not cut off in the event of further failures.
However, he is expected to come under pressure from the big suppliers for a major government support package to help them.
AdvertisementBelow are answers to some of the key questions coming out of the crisis:
Why the high prices?
Energy companies pay a wholesale price to buy gas and electricity, which they then sell to consumers. As in any market, this can go up or down. Prices typically rise in response to more demand for heating and people turning lights on earlier in winter.
But prices have sky-rocketed due to low gas storage stocks, high European Union carbon prices, low liquefied natural gas tanker deliveries due to higher demand from Asia, less gas supply from Russia than usual, low renewable output and gas and nuclear maintenance outages.
Are you a customer of Bulb or another small energy supplier and worried about keeping warm through the winter? Contact us at [email protected]
What’s behind the energy crunch?
How long could this last?
Europe’s winter heating season typically begins in October and wholesale prices are not forecast to fall significantly during the remainder of this year.
What if your supplier goes bust?
If a supplier fails, Ofgem will ensure customers’ gas and electricity supply continues uninterrupted.
Customers will be switched to a “supplier of last resort” and any credit with the old supplier will be transferred.
If a supplier of last resort is not possible, a special administrator would be appointed by Ofgem and the government.
Your old tariff will end and the new supplier will put you on a special “deemed” contract, which will last for as long as you want it to.
The deemed contract could cost you more, as the new supplier takes on more risk (for example, possibly having to buy extra wholesale energy at short notice to supply to the new customers), but Ofgem says it will try to get the best deal for you.
You should take meter readings as you will need to pass these on to your new supplier.
Once your new supplier has been in touch, ask them to put you on their cheapest deal. Then shop around and switch if you want to. You won’t be charged exit fees.
Why retail price rises?
Many energy suppliers announced hikes to retail tariffs in recent months, passing a higher wholesale cost on to consumers. Wholesale costs can make up a large chunk of a bill. In the UK on a dual fuel bill (electricity and gas), the wholesale cost can account for 40% of the total. So when wholesale market prices rise significantly, suppliers can hike consumer retail tariffs.
In countries with many energy suppliers, consumers are encouraged to switch providers or to a cheaper tariff. The UK has around 50 suppliers but smaller ones have less capital to hedge their wholesale power purchases against soaring prices and some have folded in recent months.
Prime Minister Boris Johnson said: “I think people should be reassured in the sense that yes there are a lot of short-term problems not just in our country, the UK, but around the world caused by gas supplies and shortages of all kinds.
“This is really a function of the world economy waking up after COVID.
“We’ve got to try and fix it as fast as we can, make sure we have the supplies we want, make sure we don’t allow the companies we rely on to go under. We’ll have to do everything we can.
“But this will get better as the market starts to sort itself out, as the world economy gets back on its feet.”
Families fear energy price hikeCan anyone intervene?
Some governments have announced measures to try and ease the winter burden on households. Spain’s cabinet has passed emergency measures to reduce energy bills by redirecting billions of euros in extraordinary profits from energy companies to consumers and capping increases in gas prices.
The UK introduced a price cap on the most widely used energy tariffs in 2019. However, energy regulator Ofgem raised the cap by 12% from October, after raising it in April due to high wholesale costs.
Will the cap protect consumers?
The cap affects around 15 million homes, including those on pre-payment meters, and it is aimed at helping those least likely to shop around for the cheapest tariff, such as elderly people.
Customers who are on fixed tariffs, which are more likely to be better value, are unaffected by the cap.
The next review of the price cap is due to take place in February and come into effect in April.
The rise announced late last year, which came into effect in October, means that nobody covered by the price cap will see their bills rise by more than 12% before the next review.
Of course a person’s bill can be brought down by other measures, such as paperless billing and paying by direct debit.
It is also likely that the energy companies will lobby the government to say that, with wholesale prices so high, sticking to the price cap will mean significant financial losses. They are likely to try to get the price cap raised, something that could see another review before the next scheduled one in February.
‘Range of options’ for energy crisisWhat has Ofgem said?
An Ofgem spokesman said: “Currently wholesale gas prices are at a record high, driven by international supply and demand factors.
“This is undoubtedly putting pressure on companies – with four leaving the market over the last few weeks.
“Ofgem cannot comment on whether further suppliers will fail, but we have the systems and processes in place to ensure that customer needs are always met.
“For those customers who are with energy companies that can no longer trade, a new supplier will be appointed.
“Ofgem is working closely with government to manage the wider implications of the global gas price increase.”
