Why are gas prices rising and what happens if my energy supplier goes bust?
Gas prices are rising and there’s widespread concern across the UK that many energy suppliers could go bust.
While most people normally look to save on their electric bill and gas as winter approaches, we were warned that the price of energy would rise in the UK before the end of the year. But not only for consumers it turns out, as the cost of gas for suppliers has risen by 250% since the beginning of the year. This is including a 70% rise in August alone, according to new data from Oil & Gas UK.
Those consuming the electricity are protected by the energy price cap, meaning it can only go up by so much. But this means suppliers are now under intense pressure as they have to handle the inflating cost of gas themselves.
Why are gas prices rising?
Gas prices are rising due to high demand and decreased supply. This is happening for four main reasons, according to the government:
- An “uptick” in demand for gas as world economies reopen following shutdowns during the Covid-19 pandemic.
- A cold winter at the beginning of 2021 which left stocks unusually low.
- Drop in supplies from Russia.
- Depleted wind power from the UK due to calmer weather.
Prime Minister Boris Johnson said the combination of Covid-19’s ongoing impact, combined with a particularly cold start to the year has led to a “much tighter gas market with less spare capacity”.
On a recent visit to New York, he said that there were “a lot of short term problems” caused by the gas supply shortages. But he added, “This is really a function of the world economy waking after Covid.
“This will get better as the market starts to sort itself out, as the world economy gets back on its feet.”
Other sources have also indicated more factors contributing to the problem, including closed gas refineries in the US due to Hurricane Ida and a high demand for liquefied gas in Asia, which has led to less supply making it over to the UK.
The increase in gas prices is also responsible for the increase in electricity prices. The UK creates a third of its electricity through the process of burning natural gas. And to add to the problem, electricity power supplies from elsewhere have become constrained due to damage.
Last week, there was a fire that destroyed electricity power wires connecting The National Grid site at Sellindge in Kent with France, who were importing electricity to the UK.
The National Grid say that it will be several months before they can restore the power line, further increasing the need for alternative natural gas supplies for creating electricity in the UK.
What happens if my energy supplier goes bust?
If your energy supplier goes bust, Ofgem will switch you to their supplier of last resort (SoLR). There is no need to panic if this happens, as energy suppliers go bust more than you might think.
Ofgem is the UK’s energy regulator and their SoLR is both an actual supplier of energy and an emergency procedure in place for when energy suppliers stop trading.
Last year, three energy suppliers (Tonik, Go Effortless and GnEnergy) went out of business. Anyone receiving energy from these companies was given a SoLR, which turned out to be Scottish Power, Octopus or Bulb.
When Ofgem switches an account to the supplier of last resort, any credit on the account goes with you. During the transfer process, the SoLR may just sign you up to a new tariff to replace your old contract. Once this process is complete, you can then run a comparison and decide whether you want to switch energy suppliers and get the best deal.
The process can’t begin until you’ve moved to the supplier of last resort though. When this happens, it’s best to run your own comparison. GoCompare explains that “spiralling energy costs have forced many suppliers to remove their tariffs.”
This means that price comparison websites can’t save consumers any money right now “because there aren’t enough tariffs to compare” and although it’s a service they hope resume in future, “we don’t know when that will be.”
However, Business Secretary Kwasi Kwarteng assured people earlier this week that Ofgem had plans in place to ensure customers’ supply of gas and electricity.
“Today I met the chief executive of @Ofgem who has assured me of the well-rehearsed plans in place to protect the market and consumers,” he wrote on Twitter.
“If a supplier fails, Ofgem will ensure customers’ gas and electricity supply will continue uninterrupted.”
He also confirmed, “the Energy Price Cap will remain in place to help protect customers from rising global gas prices. Our priority is to protect the consumer – and the cap protects consumers. It’s our safety net.”
What energy companies have gone bust?
Utility Point, People’s Energy, PfP Energy and MoneyPlus Energy have gone bust.
These are four of the country’s energy businesses who have asked larger companies to take over their customer base, according to the BBC.
It is likely to be the smaller companies that are unable to handle this spike in prices. Many of them haven’t previously protected themselves against this potential situation. Those who have are now cashing in on the insurance. This means that if prices dramatically rise again in the future, they’ll be vulnerable.
The future of Green energy company is also not looking too promising, according to its chief executive Peter McGirr.
He told BBC Radio 4’s Today programme that things were looking “bleak”. And “without any support mechanism being put in place by Government, it’s unlikely we will see the winter through.”
Another one facing hardship is Bulb, according to the Financial Times. It’s the sixth largest energy company in the UK with over 1 million customers. However, they are reportedly working with an investment bank to support their finances.
The post Why are gas prices rising and what happens if my energy supplier goes bust? appeared first on GoodtoKnow.