UK energy market crisis: what caused it and how does it affect my bills?

What has triggered the energy market crisis?
The UK’s wholesale energy markets have reached record highs in recent weeks. The trouble stems from a global surge in demand for gas following a cold winter that left gas storage facilities depleted, plus a rebound in post-lockdown energy demand across Asia. A race to refill gas stores before the return of colder temperatures has now caused market prices to surge.

The global gas grab is a major concern because half of the UK’s electricity is generated in gas-fired power plants. There has also been a higher than normal demand for gas power in recent months following a series of nuclear reactor outages and the recent shutdown of a major power cable that brings in electricity from France.

The UK has also had one of its least windy summers since 1961, meaning wind power has been low. Experts fear the situation will become worse as colder temperatures draw in.

What does it mean for my energy bills?
The market highs will lead to some of the most expensive winter energy bills in the past 10 years, and drive an extra half a million people into fuel poverty.

The energy regulator, Ofgem, said last month that default energy tariffs would climb by 12.5% on average to take account of the fast-rising energy market prices between February to July. The further rise of the energy markets since then means it is expected to raise energy bills again from April.

Even fixed-rate energy deals are becoming more expensive. Many one- to two-year deals are now priced above default tariffs in anticipation of rising costs in the future.

Will my energy supplier go bust?
If it is a small operator, then it is very possible. Energy experts at Barina Partners have said there may only be 10 suppliers left by the end of the winter, from 70 at the start of the year.

Five suppliers have collapsed in the last five weeks, leaving more than half a million customers needing a new energy supplier. The industry expects another four suppliers to go bust before the end of the month, and scores more to follow through the winter.

The good news is that the regulator has a process to reassign the customers left by a failed company to a new supplier. Ofgem has advised customers to wait until they find out who their new supplier will be before trying to switch to a new one – which usually takes only a few days. While you wait, take a meter reading so the next supplier can provide an accurate bill.

Why are there concerns for the UK’s heavy industry?
UK factories and steelmakers make up a significant proportion of the UK’s energy use, and are very exposed to market volatility. Steelmakers have already suspended work during hours of peak electricity demand, when prices have reached well over £1,750/MWh or more than 2,900% higher than the average price over the last decade.

In addition, two fertiliser factories in the north of England have closed due to record gas prices. Another chemicals maker, Norway’s Yara International, has set out plans to curtail its ammonia production at six facilities across Europe by 40%, including its fertiliser plant in Hull.

What are the concerns for the UK food industry?
The government has held emergency talks with representatives from the food and drink industries, as well as the UK meat sector, over concerns that trouble in the chemicals industry could affect the supply of carbon dioxide for the food sector.

Fertiliser plants use gas to produce ammonium nitrate, and supply CO2 as a byproduct. The carbon is used in fizzy drinks and beer, for dry ice when shipping perishables, as well as in the meat industry to stun animals before slaughter.

The meat industry has warned that farmers may need to begin “humane” pig culls for the first time since the outbreak of foot and mouth disease because of a looming shortage of carbon dioxide at abattoirs that are already understaffed amid labour shortages.

What can the government do to help?
Ministers are facing calls from heavy industry, the food sector and energy suppliers for support to weather the winter ahead.

The government has held talks with representatives from the food and drink industry and the business secretary, Kwasi Kwarteng, held crisis meetings over the weekend with representatives and energy suppliers and the operators of key energy infrastructure to determine how serious the situation may become in the months ahead.

Kwarteng was due to meet with Ofgem on Sunday before a roundtable meeting of energy industry leaders this week to thrash out how the government can support the industry and protect households. No decisions have been made yet.

In Spain, the government plans to put in place a windfall tax on power plant owners to create a €3bn (£2.55bn) fund which will be used to lower consumer bills.

Greece and France are also considering subsidising energy bills. The UK government is also likely to rely on the energy price cap to protect households.

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