Households are facing much higher winter energy bills due to a global surge in wholesale power and gas prices.
The costs are also putting pressure on the suppliers – particularly smaller companies – who are unable to pass on the increases to their customers.
Four firms have already folded and there are fears that more could follow.
Business Secretary Kwasi Kwarteng has said “well-rehearsed plans” were in place to ensure consumers were not cut off in the event of further failures.
However, he is expected to come under pressure from the big suppliers for a major Government support package to help them.
Below are answers to some of the key questions coming out of the crisis:
Why the high prices?
Energy companies pay a wholesale price to buy gas and electricity, which they then sell to consumers. As in any market, this can go up or down. Prices typically rise in response to more demand for heating and people turning lights on earlier in winter. But prices have sky-rocketed due to low gas storage stocks, high European Union carbon prices, low liquefied natural gas tanker deliveries due to higher demand from Asia, less gas supplies from Russia than usual, low renewable output and gas and nuclear maintenance outages.
How long could this last?
Europe’s winter heating season typically begins in October and wholesale prices are not forecast to fall significantly during the remainder of this year.
Why retail price rises?
Many energy suppliers announced hikes to retail tariffs in recent months, passing a higher wholesale cost on to consumers. Wholesale costs can make up a large chunk of a bill. In the UK on a dual fuel bill (electricity and gas), the wholesale cost can account for 40% of the total. So when wholesale market prices rise significantly, suppliers can hike consumer retail tariffs.
Can anyone intervene?
Some governments have announced measures to try and ease the winter burden on households. Spain’s cabinet has passed emergency measures to reduce energy bills by redirecting billions of euros in extraordinary profits from energy companies to consumers and capping increases in gas prices. The UK introduced a price cap on the most widely used energy tariffs in 2019. However, energy regulator Ofgem has raised the cap on the most widely used tariffs by 12-13% from October, after raising it in April due to high wholesale costs.
What can consumers do?
In countries with many energy suppliers, consumers are encouraged to switch providers or to a cheaper tariff. The UK has around 50 suppliers but smaller ones have less capital to hedge their wholesale power purchases against soaring prices and some have folded in recent months.
What if your supplier goes bust?
According to Citizens Advice, UK customers will still continue to receive gas or electricity even if the energy supplier goes bust. Customers will be switched to a “supplier of last resort” and any credit with the older energy provider will be transferred across. Households are advised to take meter readings as they will need to pass these on to their new supplier. Customers do not have to stay with a supplier of last resort but they should wait until their account is set up and any credit is transferred before switching.