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 now many fear that gas providers could go bust as suppliers are under intense pressure 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).
Kalpana Fitzpatrick, editor of The Money Edit, says, “If your energy supplier has gone bust, don’t panic and try to switch to another provider yourself - otherwise you could end up losing any credit you have with your existing supplier and could end up on an expensive tariff as most of the cheaper ones are no longer available.
"It would also be prudent to take a picture of your meter reading as soon as possible, as your new supplier may ask for this and it is proof of your energy usage to date."
Ofgem is the UK’s energy regulator and a 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 Utility Point folded last week, Ofgem told utility customers that EDF would be their new supplier.
When Ofgem switches an account to the supplier of last resort, any credit on the account goes with you. This may not happen if you switch energy companies yourself. During the transfer process, the SoLR may 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.
"This is also a good time to review your household finances with the expectation that your bills will go up at some point," Kalpana adds. "You can get help with this using the Money Helper's free budgeting planner."
Importantly, you will still have gas and electricity at home if your supplier goes bust. Business Secretary Kwasi Kwarteng assured people earlier this week that Ofgem had plans in place to ensure customers' energy supply.
"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."
Despite this, it's still a pressing time for many people in the UK. Not only are gas prices rising but the cost of food and petrol are going up, the new minimum wage for 2022 is being announced and furlough is coming to an end.
What energy companies have gone bust?
These energy companies have gone bust:
- Avro Energy
- Utility Point
- People's Energy
- PfP Energy
- MoneyPlus Energy
These six suppliers are some 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 was not looking too promising earlier this week, 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 energy firm 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.
Is Octopus Energy going bust?
No, Octopus Energy are not going bust.
Found Greg Jackson took to Twitter earlier this week to clear up customers' concerns. He said, "No - as a global, very well backed company we're fine but plenty more are not.
"There's no glee in seeing other companies fail which is why we've launched a special recruitment drive to help some of those losing their jobs in those companies."
Octopus Energy came onto the energy market in 2015. A fairly new company, some of their 2.4 million customers were concerned about how the business was handling the spike.
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Grace Walsh is a Features Writer for Goodto.com, covering breaking news health stories during the Covid-19 pandemic as well as lifestyle and entertainment topics. She has worked in media since graduating from the University of Warwick in 2019 with a degree in Classical Civilisation and a year spent abroad in Italy. It was here that Grace caught the bug for journalism, after becoming involved in the university’s student newspaper and radio station.
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