After the economic slowdown from the pandemic, surely the energy market will start to pick up again, right?
Well, not so fast. The world is now facing a new problem, the energy crisis. With surges in demand, fuel shortages and record-breaking energy prices, the situation is escalating around the globe.
I can imagine you have lots of questions about the energy industry right now. This article will answer the common questions about the current energy crisis, aiming to make sense of all the chaos.
What Is Happening To My Energy Bills?
If we take a look back to one year ago, UK households on a variable rate tariff were paying roughly £800 for the average energy user. The best fix paid tariff was £817 at the time. Skip to the current date, those same customers don’t know whether or not their supplier is going bust.
For a comparison, wholesale gas prices have increased by 250% since January, with more recent rises of 70% since August. Numerous factors have all combined to create this price increase.
With the world coming out of a global pandemic, a colder European winter last year draining supplies, gas storage levels lower and increased demand from Asia for liquefied natural gas, it has created the perfect storm for rising energy bills.
Will The Energy Crisis Impact My Business?
Many businesses could be affected by the rising energy prices. Many industries rely on energy-intensive machinery, so combined with increasing bills, it could cause huge issues for production levels.
Having to reduce production or even pausing production could see companies having to cease trading, leading to job losses.
To combat this, many businesses will have to increase their prices, with customers having to pay more for goods and services. This could lead to loss of business, with customers being priced out of their usual purchases.
All businesses use energy. Whether it is the local cafe, shop or office, energy bills will be paid. These rising costs could cause many businesses to struggle and some could likely, unfortunately, go bust.
What Is The Energy Price Cap?
The energy price cap is the maximum price your energy supplier can charge for a single unit of energy. This also takes into account VAT and standing charges. The price cap applies to standard rate tariffs. It is set every six months by the energy regulator Ofgem, in October and April.
For this October, Ofgem announced that for standard direct debit customers, the price will be 4p per kWh for gas and 21p per kWh for electricity. However, there are different price caps, all depending on how you pay for your energy and where you live. An example being that pre-payment customers will have the highest price cap.
Why Are UK Energy Suppliers Going Bust?
In the space of just two months, 10 small independent energy suppliers in the UK went bust, making a total of 12 suppliers go bust in 2021. Many customers are affected by this, with more than 1.7 million homes being forced to switch providers this year.
This winter, it is predicted that more will go bust, with rising energy costs and cold weather warnings. These rising prices are the reason why so many companies are failing. Energy suppliers are unable to pay the record high prices for gas and they cannot pass the increased costs on to their customers.
What Is A Supplier Of Last Resort?
You may have seen this term being used recently. With so many customers being forced to switch energy suppliers, this is where the term is used.
A supplier of last resort, or SoLR. is when your current energy supplier goes out of business, you’ll then be placed with a new provider that is selected by Ofgem, the UK energy regulator.
What Happens When My Supplier Goes Out Of Business?
Well, you’ll be notified of the company going bust. You will be told the reasons why they have stopped trading, as well as who your new supplier is going to be. This is the SoLR.
What Are Examples Of Suppliers of Last Resort?
We have seen many energy suppliers exit the market over the last few years, in particular this year. Below is a table created by Switchcraft showing providers who were taken over by SoLR’s in recent times.
Supplier | SoLR | Year |
Tonik | Scottish Power | 2020 |
Go Effortless | Octopus | 2020 |
GnERGY | Bulb | 2020 |
Breeze Energy | British Gas | 2019 |
Toto Energy | EDF | 2019 |
Eversmart Energy | Utilita | 2019 |
Solarplicity | EDF | 2019 |
Cardiff Energy Supply | SSE | 2019 |
Brilliant Energy | SSE | 2019 |
Our Power | Utilita | 2019 |
Economy Energy | Ovo | 2019 |
What Should I Do If My Supplier Has Gone Bust?
This question is unfortunately becoming more common. So, your supplier has ceased trading, now what?
Firstly, wait for Ofgem to switch you to the supplier of last resort. Ofgem will make sure that any credit that was left with your old supplier is transferred to your new supplier account.
After the process of moving is done, it is recommended to compare your new prices with other suppliers to see if you can save some money.
However, right now in October 2021, there are little to no tariffs available due to the energy crisis. Right now, customers on fixed deals are advised to stay put and not do anything until the new price cap is announced. The price cap will protect your energy prices, so check online to see when tariffs are available.
Your new supplier may offer you a new fixed tariff, rather than placing you on a ‘deemed contract’. Before accepting this deal, you should compare the market, as switching from a fixed tariff can result in exit fees.
Which UK Energy Suppliers Have Gone Bust This Year?
In 2021, sadly 12 independent UK suppliers have gone bust. Some of these suppliers had more than 600,000 customers, all being impacted by the increasing wholesale gas prices. Just this year alone, over 1 million customers were forced to change suppliers.
So, which energy companies have ceased trading in 2021?
Date | Failed supplier | Customers | Acquiring supplier |
September 2021 | Symbio | 50,000 | E.ON Next |
September 2021 | Igloo | 180,000 | E.ON Next |
September 2021 | Enstroga | 6,000 | E.ON Next |
September 2021 | Avro | 600,000 | Octopus |
September 2021 | Green | 350,000 | Shell |
September 2021 | People’s Energy | 350,000 | British Gas |
September 2021 | Utility Point | 200,000 | EDF |
September 2021 | PFP Energy | 80,000 | British Gas |
September 2021 | Moneyplus Energy | 9000 | British Gas |
August 2021 | HUB Energy | 15,000 | Eon Next |
January 2021 | Simplicity Energy | 50,000 | British Gas Evolve |
January 2021 | Green Network Energy | 367,500 | EDF |
What Will Happen To Energy Prices In The Future?
With the price cap set to change in April, it is likely we are just seeing the beginning of future price increases. Next spring, it is estimated that prices will soar to more than £1,500 for average use.
Households and businesses that use more energy will likely pay a lot more than this annually, which could cause a huge knock-on effect to businesses. If the market starts to stabilise and wholesale prices begin to drop, then consumer prices will fall, but until then, we can only expect increases in the energy market.
Why Has The UK Been Impacted So Badly?
The UK has been hit hard due to being one of the biggest users of natural gas in Europe. For central heating, 85% of homes in the UK use gas, as well as gas being used to generate up to 33% of electricity.
Another reason was a fire at a key import cable from France. This severed a major electricity supply source to the UK. Another fire on The National Grid site at Sellindge in Kent also added to the issues. The facility will be offline until 25 September, running at half capacity until March 2022.
Calmer weather is another factor that has impacted the UK. This summer was the least windy since 1961, so renewable energy generation is a lot lower with wind turbines not at full efficiency. Recently, wind energy provided a mere 9% of power across the UK.
Is The Energy Crisis Just In The UK?
The UK isn’t the only nation to be impacted by the energy troubles, it has become a global problem. Across the whole of Europe, natural gas prices have soared, with Russia playing a key part in this by capping additional flows.
European gas storage is below the 10-year average, however, the amounts should be enough to cover the needs for this winter. Some countries have stepped in to support consumers, with Greece applying a subsidy for all households and Spain easing energy bill costs.
If we look further abroad, rising thermal coal prices in Asia have reached record numbers. With coal demand exceeding supply, as well as cold winters and hot summers, there is a state of emergency for electricity in China.
Recently, to meet emission targets, China eased up on coal consumption. However, they are looking to make a u-turn and return to the market as storage is low. India is also in the same position, with coal stockpiles also at minimal levels.
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