A perfect storm: what rocketing gas prices mean for consumers

Kwasi Kwarteng has sought to reassure Brits fearful of soaring winter fuel bills that the energy price cap which “protects millions of consumers” will “remain in place,” as the crisis over gas prices intensifies.

“Consumers come first”, the Business Secretary insisted. But he also promised that ministers were looking at ways to protect energy firms struggling to cope amid skyrocketing wholesale gas prices. 

The price energy suppliers pay for gas has hit record highs, having increased by 250 per cent since January, with a 70 per cent rise in August alone.

Many smaller UK energy firms are on the brink of collapse. Four suppliers – Money Plus, Utility Point, People’s Energy and PFP – have already gone bust this month, with many more expected to suffer the same fate in the coming days. An estimated one million customers could be left without a supplier in the next fortnight. At the start of 2021, there were 70 energy suppliers in the UK; now, industry sources are warning there could be fewer than 10 left by the end of this year.

What is causing the crisis? 

We are witnessing a global issue of high demand and reduced supply. And a number of factors have contributed to the depleted stocks. 

Last year, a cold winter in Europe piled pressure on supplies, meaning the amount of stored gas is now far lower than normal. There has also been an increased demand for liquefied natural gas from Asia. Russia has reduced its supply of natural gas and imports from Norway have slowed. 

While rising gas prices have been felt across Europe, there are reasons why Brits have been hit particularly hard. Crucially, supplies of renewable energy are depleted because we’ve witnessed the least windy summer since 1961.To make matters worse, a fire at a National Grid site in Kent last week has shut off a power cable supplying electricity from France. 

The government’s energy price cap protects consumers from sudden price hikes by enforcing a maximum price that gas companies can charge. For the companies themselves, this legislation is troublesome: it prevents them passing on the higher prices they pay for gas to customers. 

Yet the cap hasn’t entirely shielded customers from the effects of the gas crisis. From October, a higher price cap is coming into force, meaning five million households in England, Wales and Scotland will see their energy bill increase by more than £100 per year. 

But given wholesale prices have risen by a whopping 250 per cent over the past year, even this raised price cap won’t be enough to prevent many companies from bankruptcy. 

The burden falls heavily on smaller companies, with their shallower pockets and less comprehensive insurance plans to prop them up. But when smaller companies collapse, there’s also a knock-on effect. Larger energy firms are being urged to step in to supply customers left without providers, but many have warned that the expense of providing hundreds of thousands of new customers with power, amid skyrocketing energy prices, will leave them squeezed. 

Calls for state assistance are mounting. If the government is resisting pleas to scrap the price cap, pressure will pile on them to help providers in other ways. 

The burning question now is whether or not the treasury will hand out state loans to energy firms. But free market critics will point out that the cap – an attempt to fix the market – seems to have helped create today’s problem. Is even more state activism the answer?

Bulb, Britain’s sixth largest provider with over 1.6 million customers, is already seeking a state bailout. 

At present, the PM is still dodging the issue. Boris Johnson has insisted he is “very confident” in the UK’s supply chain, and that market forces should be “very, very swift” in fixing the crisis.