The UK's gas crisis is one part of what looks like a major political storm for the Tories, writes Terina Hine
Global wholesale gas prices have surged by 250% since January. In the UK prices rose by 70% in the last month alone. Consumers are facing huge price hikes, energy companies are going bust and supermarkets are warning of empty shelves. We have been warned of a winter of discontent.
This global phenomena has been exacerbated by the post-Covid economic bounce, and with gas shipments diverted from Europe to China to meet an 8.4% increase demand, is having a significant impact on Europe. But as the rest of the continent appears able to weather the storm, here in the UK the Business Secretary is warning of a ‘very difficult winter’ ahead.
Why? Because the UK energy market is run on the basis of aggressive competition and is barely regulated. Because half of the UK’s electricity supply is generated by gas-fired power stations, because we live in draughty, uninsulated homes reliant on gas boilers for heating and hot water. Add the outages for maintenance and the shutdown of a power cable used to bring in electricity supplies from France and you have the perfect storm.
High energy demand, low solar and wind production, little by way of reserves and a long term but short-sighted energy policy have all contributed, but it is the free-for-all privatised market that led us here. And now we will all pay the price.
In 2017 the privatised energy company Centrica was allowed to close Britain’s largest gas storage site - the Tories at the time claiming the market knew best - and now, four years later we discover we have the lowest level of gas reserves in Europe. Surging natural gas prices and a shortage of reserves has led to the closure of much of the country’s commercial CO2 production. So unlike our neighbours we face a crisis not only in energy supply but in our food chain and industrial production.
The UK has a very low bar for those wishing to enter the energy market. Oversight, vetting and risk management of suppliers has been negligible, and consumers have been encouraged to shop around (most don’t - hence the need for the price cap) to increase competition. To lure new customers the energy companies offer loss-leading tariffs, with correspondingly poor service. Without reserves or financial buffers a number of firms have already gone under. Undoubtedly more will follow.
According to today’s Times, experts believe that 39 suppliers could fail in the next year, leaving just 10 viable companies. This is the same number of suppliers that existed in the mid 2000s, and is a long way short of the peak in 2017 when there were 70 suppliers competing for our custom.
When a supplier fails, Ofgem, the industry regulator, moves customers to a new supplier. Customers on low tariffs will be moved to the maximum charge under the price cap, leaving many with sudden and significant rises to their energy bills - some will face as much as a 50% increase.
To make matters worse the price cap goes up on 1 October by £139 - with the new cap set at £1,277 per annum. According to market analysts suppliers will be still be absorbing much of the global price rise, so by summer 2022 modellers estimate further increases the cap, with a typical customer paying as much as £1,450 per annum.
Household bills will soar - inflation is expected to hit 4% by the end of the year. With those on the lowest incomes spending proportionately more on food, gas and electricity than richer households, they will be hit the hardest. Fuel poverty, already a serious issue for many, is about to become endemic. With workers facing cuts to universal credit and a hike in national insurance contributions next April, the impact will be felt by millions.
Today Boris Johnson was forced to say that he didn’t believe people would be short of food - obviously forgetting the thousands already dependant on food banks - but even if the lights remain on and the gas and food supply is assured, the strain of price rises alongside income cuts will be immense. The energy crisis is leading to a cost of living crisis which could swiftly develop into a major a political storm.
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