Are higher energy bills here to stay?

Ofgem chief warns that more suppliers may fail amid soaring gas prices

Gas hob flame
(Image credit: David McNew/Getty Images)

Sky-high gas prices may prove to be more than a blip as energy shortages drive more suppliers out of business in the coming months, the head of Ofgem has warned.

Jonathan Brearley, chief executive of the energy regulator, told MPs yesterday that the number of customers affected by a surge in natural gas prices was already in the “hundreds of thousands” and could increase to “well above that”.

Addressing the Business, Energy and Industrial Strategy Select Committee (BEIS), Brearley said: “Have a look at the change in the gas price - it really is something that we don’t think we’ve seen before at this pace.”

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Predicting exactly how badly consumers will be hit was “very hard”, he said, but “we do expect a large number of customers to be affected”. Brearley also warned that further energy firms were likely to go bust, adding: “We are going to want to have a ‘lessons learned’ after this.”

Sector warned of ‘fragility’

The government and Ofgem were “warned as early as two years ago about the fragility of the energy sector”, reported Sky News.

Emma Pinchbeck, chief executive of Energy UK, told the BEIS committee that she had taken up her role with supplier trade body “a year ago” and that her team had been cautioning ministers and regulators “for a year or more before that” about the supply problem.

“There’s a short-term crisis here, which is in some ways out of our control - it’s to do with the gas prices - but it’s been exacerbated and arguably caused by our regulatory design,” she said.

“And that is a resilience and security of supply risk in the future. It’s terrible news for customers in the long run.”

However, Business Secretary Kwasi Kwarteng “has attempted to play down fears that the crisis will continue into the long-term”, said the i news site.

Shrugging off the “alarmist” warnings about shortages, he told MPs in the Commons on Tuesday that there was “no question of the lights going out” this winter.

Government response

The gas crisis stems from a “global surge in demand” after “a cold winter that left gas storage facilities depleted” followed by a “rebound in post-lockdown energy demand across Asia”, explained The Guardian’s energy correspondent Jillian Ambrose.

Market prices have now surged amid a “race to refill gas stores” before temperatures drop again in the coming months, she continued. And the “global gas grab” is a major concern for the UK, as half of the country’s electricity is generated by gas-powered plants.

Wholesale gas prices have risen by 250% since the start of the year, leaving many smaller suppliers unable to supply gas at the prices they promised customers.

A total of seven energy companies have gone bust since the start of August. The latest casualities were Avro Energy and Green, which collapsed on Wednesday, leaving a further 830,000 customers with no choice but to switch to “a new, potentially more expensive, provider”, said the BBC.

Experts at HSBC warned the costs were unlikely to return to normal for two years. “Prices should remain elevated next summer before normalising in 2023,” analysts told The Times.

Kwarteng told MPs yesterday that the government was considering following in the footsteps of Spain and introducing a windfall tax on firms that have benefited from rising wholesale gas prices while customers and energy suppliers struggle with rising costs.

In Spain, the tax has been used to “fund protections for customers”, The Independent explained.

“We’re looking at all options,” Kwarteng told the BEIS committee. “I think what they’re doing in Spain is recognising that it’s an entire system. We’re in discussion with Ofgem officials, looking at all options.”

UK consumers are currently protected by the energy price cap, and under the Warm Home Discount scheme, people with low incomes could potentially get £140 off their electricity bill during the winter months.

The government is also considering plans to pay larger energy suppliers to shoulder the cost of picking up customers of companies that go bust.

Struggling suppliers are unlikely to be propped up, however.

“What I don’t want to do is to give taxpayer money to companies which have come into the market only to exit the market after a year. I don’t think that’s responsible,” said Kwarteng.

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