The UK has been shaken by the recent news of the energy market crisis. The main reason for the crisis is that wholesale prices of gas have increased by 250% since January, and by 70% since August. This graph shows the hike in gas prices. Stuck between these increased costs and the costs they have commited to offer customers, several energy suppliers have now gone bust and many more might follow suit.
Created by Ofgem to prevent customers from overpaying energy the Energy Price Cap had already been updated for the October 2021 to February 2022 period with a steep 12% increase vs February. But the question is now will this increase be sufficient to avoid all smaller suppliers from collapsing. In this short article, we will try to study the causes and what customers can do to protect themselves from this energy market crisis and avoid a surging energy bill.
What to do about the Energy Market Crisis?
Which suppliers have gone bust?
In the past days and weeks a few energy suppliers already went bust, due to the energy crisis:
– Hub Energy: In August, HUB Energy was first to announce that they are being ceased. Ofgem appointed E.ON to take on the 6,000 domestic and 9,000 non-domestic customers.
– MoneyPlus Energy and PFP Energy: In the beginning of September, MoneyPlus Energy and PFP Energy also went bust, leaving 9 000 and 87 600 customers, respectively.
– Utility Point and People’s Energy: This trend was followed by Utility Point and People’s Energy. Customers of People’s Energy will be moved to British Gas, while Utility Point’s customers are being switched to EDF.
– Avro energy and Green: The latest suppliers to go out of business were Avro energy and Green, which account for 3% of the energy supply. Avro Energy had more than 580 000 customers and Green was a provider for 255 000 domestic customers. The supplier that will take on the customer is yet to be appointed by Ofgem.
Smaller energy providers are hit harder by the energy market crisis and more of them are expected to go bust in the coming days. It is extremely hard for them to cope with the increasing and record high wholesale gas prices. Although bigger suppliers are more protected and have higher chances of surviving, they are also going through a hard period. They have to take on the customers of failing suppliers and be able to cover the energy for them.
The most unexpected news came from the 6th largest energy provider, Bulb that is seeking a bailout. According to Financial Times, Bulb is currently working with an investment bank to receive financial support and be able to survive the energy storm. At the beginning of 2021, the UK had 70 suppliers. If the crisis does not go under control, the country might be left with only 10 suppliers by the end of this year.
What to do if your supplier goes bust?
In case of your supplier going bust, you will still be provided with gas and electricity. Ofgem will quickly transition you to another supplier and you will be contacted with further information and instructions about your account, outstanding bills or credits.
If you are waiting to receive money back from your old supplier, you should not worry about this. The credit will be paid back by one of the two suppliers, depending on their agreement. If you are in debt to your previous supplier, you will be contacted with instructions on how to proceed and to which supplier you should pay back the outstanding amount. While waiting for them to contact you, you can take a note of your consumption and a meter reading for reference.
Should I switch now?
You might be wondering if it is best to switch immediately to a new provider that is less affected by the energy crisis. As the situation is still unclear and is changing with every day, it is not known which suppliers will stay on the market and which will go bust.
Therefore, it is best to wait and see how the situation will develop and make a better informed decision. In case your supplier goes bust and you are transferred to another one, you will be put on a deemed contract by the supplier that Ofgem will appoint. Deemed contracts can be on a higher tariff and might not be the best available deal on the market. If you are not happy with this tariff, you can simply switch to another cheaper supplier, once the transfer is completed.
What is the cause of the crisis?
Many factors can be blamed for this big crisis, especially combined together to make the best recipe for disaster. One of the main reasons is the hike in global demand for gas as countries reopen after lockdowns and are trying to restart their economies. Asia, and especially China have been in high demand for gas. Shipments of gas have gone from Europe to China and the supply from Russia to Europe has not covered the gas deficiency.
Less renewable energy production
An increased stress on natural gas reserves
What could be the consequences?
A restructuring of the UK Energy industry?
Will the Energy Price Cap be increased?
The Energy Price Cap sets the maximum that the energy suppliers can charge and it aims to protect customers from overplaying. The new Price Cap is just about to go into effect on the 1st of October and will increase the bills with 12%. The government usually adjusts the Energy Price Cap every year in October and February to match it with the current wholesale energy prices.
Under normal circumstances, the new Cap should be valid until February 2022, before being adjusted again. However, due to the current market crisis, suppliers are insisting on the government to remove the Price Cap. This will allow them to charge higher prices and help them to cover the costs for the record high wholesale gas prices. At this moment, the government is hesitant to lift the Price Cap because this is the only way to protect the customers from the rising bills.
This article is a guest contribution by Chloe Davies of papernest