Energy firms demand price cap is scrapped due to soaring cost of gas

How the gas crisis has erupted… and how it could get worse 

WHY ARE GAS PRICES RISING SO SHARPLY? 

The economy is opening up from its pandemic lows, so demand for gas is increasing.

Europe is also about to start entering winter, when gas demand will be highest, especially from countries such as the UK which overwhelmingly rely on gas to heat homes.

WASN’T THAT QUITE PREDICTABLE?  

Yes, but a perfect storm of other problems has also hit the sector. Supply from Russia has dried up recently, and demand is high in Asia, which is putting pressure on international markets.

In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic.

In a further stroke of bad luck, cables that import electricity from France were damaged last week, and September has not been a very windy month. These problems have meant that more gas is needed to produce electricity. 

SO WHAT PROBLEMS ARE BEING CAUSED? 

The high demand and low supply has been sending wholesale prices spiking, putting smaller energy suppliers under huge pressure.

They are less likely to have ‘hedged’ by buying energy well in advance so they can manage costs over the longer term. As a result they face having to buy energy at ‘spot’ prices and incurring huge losses.  

Five have gone bust over the past month or so, and there are concerns more could follow. 

Ofgem has systems to allocate their customers to other suppliers. But appetite to take people on might be limited given the strains caused by rising wholesale costs, and the fact the government’s cap limits scope for putting up prices. 

Inevitably as the cap is updated this autumn and then next spring consumer bills will go up sharply – possibly by nearly double.

IF THIS IS ABOUT ENERGY COSTS WHY ARE WE TALKING ABOUT FOOD SHORTAGES? 

Aside from direct energy prices, there are also severe and less obvious knock-on effects. 

For example, fertiliser plants have temporarily shut due to the high costs, and they produce CO2 that is used in food processes such as animal slaughtering, and even for medical operations. 

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Ministers today admitted some families will face a choice between ‘eating and heating’ this winter as he dismissed pleas from Britain’s floundering energy companies to let them add hundreds of pounds to household bills immediately.

Business Secretary Kwasi Kwarteng warned of ‘difficult’ months to come as he accepted that a swathe more suppliers could go bust amid rocketing wholesale gas prices – but insisted that many simply had bad business models and deserved to collapse.

He stressed there is no question of the government’s cap on the average bill being dropped, and said there will be no bailouts that ‘reward failure’. However, he hinted that larger suppliers that agree to take on customers left in limbo could get support.

Appearing on ITV’s Good Morning Britain, Mr Kwarteng was told by presenter Susanna Reid that people would face ‘the choice between heating their homes and staying warm or eating, parents who may forego meals in order to feed their kids’.

He replied: ‘You’re right, and that’s why I’m very keen to keep the warm home discount and also there are other winter fuel payments that we’re looking at.’

Pressed on whether he was asking Chancellor Rishi Sunak to raise the warm home discount, he said: ‘We have discussions about the Budget, and you will see what happens in the Budget. I can’t possibly pre-empt or anticipate what will be in that Budget ahead of time, you’ll appreciate that.’ 

In more grim news for the taxpayer, Mr Kwarteng also suggested that carbon dioxide producers could be subsidised to re-start their plants, which have been temporarily shut down to avoid paying brutal market gas prices. 

The pause is threatening to cause chaos for the food industry as well as the nuclear sector and even the NHS – with warnings British meat will be off shelves within days and tens of thousands of pigs will need to be slaughter and put into mass graves on farms.  

In a round of interviews this morning, Mr Kwarteng said: ‘I’ve been very clear that the energy price cap is staying even though some energy companies I read today are asking for it to be removed, I’ve been very clear that that’s staying, so we’re protecting customers there.

‘We’ve got the warm home discount, we’ve got winter fuel payments, which are again focused on the most vulnerable customers. 

‘So, we’re completely focused on helping vulnerable customers through this winter, particularly with regard to energy prices.’

Mr Kwarteng met with panicked energy bosses yesterday in Whitehall and slapped down calls for the cap on the average bill – which is due to rise to £1,277 from October 1 – to be abolished or suspended. It is expected to rise again to around £1,500 in April.

Seven firms have collapsed in 2021 in total and many have only been in existence for five years. Experts have predicted that up to 39 more could go in the next year.

One senior industry source told the Telegraph: ‘For the time the price cap has been in place, suppliers have generally been losing money or making very tiny margins.

‘So the price cap is great for consumers, but companies are really struggling. There have definitely been unintended consequences.’

But Mr Kwarteng told Sky News: ‘Firstly, we’ve got to look after customers, we’ve got to make sure there’s a continuity of supply, and we’ve got to look after the most vulnerable – and particularly elderly – customers, that’s my first priority.

‘The second thing I’ve said is that I don’t think we should be throwing taxpayers’ money at companies which have been, let’s face it, badly run.’

He told Times Radio that ‘not every company’ could expect a Government bailout, but support could be available for larger firms.

‘Any support for those larger companies will be in terms of working capital, will be a loan, it won’t be just a grant, it won’t be just a blank cheque,’ he told the BBC.

Mr Kwarteng said he has held talks with fertiliser firm CF Industries, which has suspended operations because of the high cost of energy, leading to a national CO2 shortage.

The gas is used to stun animals prior to slaughter and also forms part of the protective packaging used to keep foods fresh.

Mr Kwarteng said he hoped to have a ‘very clear plan’ to get CO2 production back up and running this week.

He told Sky News he was ‘confident’ of a resolution and ‘it’s pretty imminent’, adding the CO2 situation was ‘critical’.

Ian Wright, chief executive of the Food and Drink Federation, said shoppers may notice that products are missing from supermarket shelves ‘in about 10 days’.

He told BBC Radio 4’s Today the potential shortages of CO2 supply were ‘a real crisis’ and said ‘the just-in-time system which underpins both supermarkets and the hospitality industry is under the most strain it has ever been in the 40 years it has been there’.

Mr Wright said that poultry production will begin to erode very seriously by the end of this week, with the same being true of pig production and the making of bakery goods. Meat packaging is probably only about a week behind, he added.

Millions of Britons have taken out attractive energy deals with firms that are now collapsing.

Under a ‘supplier of last resort’ system they are transferred to other stable firms – but their new terms are based on the cap level.   

That means they face the prospect of paying up to £400-a-year more almost immediately.  

The crisis is expected to hit huge numbers of people after wholesale energy prices went from a record low last May because of a lack of demand due to global lockdowns to the highest rates seen since the 1990s. 

Boris Johnson told reporters at the UN in New York last night that the government is ‘working very hard to find a way through’ but the chaos demonstrated the need to move to ‘clean, green sources of energy’. He compared the economic recovery after Covid to a ‘big thaw’ when pipes had been frozen.  

‘That’s when you have the problems and the leaks and all the difficulties, that’s really what’s happening to the global economy,’ the PM said.

‘It’s thawing very rapidly and you are seeing problems in the supply chains, very strong demand for gas around the world is producing this phenomenon but we’re going to fix it.’

Scott Byrom, Chief Executive Officer of TheEnergyShop.com, told MailOnline the 650,000 customers at the five energy companies to have folded in the past month were likely to be paying around £850-a-year for their energy because of the deals on offer in 2019 and 2020.

But they could immediately face a hike to £1,277 from October 1 due to the planned energy cap rise and may be paying as much as £1,500 by next April when they are moved to a new provider.

There are concerns that millions more people could be in the same situation after energy consultants Baringa predicted that the number of UK energy companies could fall from 49 to 10 in the next 12 months if wholesale prices remain the same. 

Experts have said that many of the companies that have gone bust brought in customers on ‘dirt cheap’ fixed deals on the back of low prices last year – but now have no hope of making any money so either folded or are seeking a Government bailout.

Ofgem will automatically move customers of Hub Energy, PfP, MoneyPlus, Utility Point, People’s Energy to a new supplier in the coming days with British Gas taking 350,000 of them today and EDF 220,000 last week. 

But energy market rules demand that customers whose supplier goes bust must be offered a fair deal by the new supplier – not the same one they had – meaning they are likely to pay significantly more. 

They will bring whatever credit they have on their accounts to a new provider, however.

Those affected can shop around for a new deal if they are unhappy with their new provider, but last year most energy firms were offering deals at £750 to £850-a-year – today there are now scarcely any deals under £1,200-a-year.

Stacey Stothard was one of 220,000 customer at Dorset-based Utility Point, which has gone bust. She believes her bill will now go up by up to £300 or more.

She told the BBC: ‘It is just like watching the meter go up and up. 

‘I did the right thing – not going for the cheapest deal, but choosing a company with a decent customer service record. 

‘I tried to protect myself from this turbulence. 

‘Now I’ve just had to order a lot of logs for the burner.’

These are the seven energy firms to have gone bust in 2021. Experts predict up to 39 more could go in the next year. Some of those to fall have only been running for a matter of years since the energy market was opened up hugely in 2014

These are the seven energy firms to have gone bust in 2021. Experts predict up to 39 more could go in the next year. Some of those to fall have only been running for a matter of years since the energy market was opened up hugely in 2014

These are the seven energy firms to have gone bust in 2021. Experts predict up to 39 more could go in the next year. Some of those to fall have only been running for a matter of years since the energy market was opened up hugely in 2014

A graphic illustrating how the three issues are currently affecting the UK and the problems it is causing. The People's Energy Company (bottom, middle) is one of the energy suppliers that have already gone bust

A graphic illustrating how the three issues are currently affecting the UK and the problems it is causing. The People's Energy Company (bottom, middle) is one of the energy suppliers that have already gone bust

A graphic illustrating how the three issues are currently affecting the UK and the problems it is causing. The People’s Energy Company (bottom, middle) is one of the energy suppliers that have already gone bust

What companies are supplying energy? 

The government has been trying to open up the UK’s energy market to more competition, meaning there are far smaller players involved than there used to be.

The traditional Big Six tend to use their reserves to ‘hedge’ against changes in prices, and can withstand sharp increases.

Outside that group there are four larger ‘challengers’ that are also fairly well-established.

But then there are dozens more, often little-known, suppliers that have been trying new approaches and look far more vulnerable to the shifts. 

The seven energy companies to have gone bust in 2021

Simplicity Energy

Green Network Energy 

Hub Energy

PfP

MoneyPlus

Utility Point

People’s Energy 

The ‘Big 6’ energy suppliers

British Gas

Scottish Power

Npower

E.ON

EDF Energy

SSE – Swalec, Scottish Hydro, Southern Electric and Atlantic

The challengers 

Ovo Energy 

Shell Energy 

Octopus Energy

Utilita Energy

The remaining firms 

Affect Energy –

Atlantic –

Avro Energy –

Better Energy –

Boost Energy –

Breeze Energy –

Brilliant Energy –

Bristol Energy 

Bulb Energy – seeking government bailout 

Co-Operative Energy 

Daligas –

EBICo –

Economy Energy –

Economy Seven Energy –

Ecotricity –

Engie –

Enstroga –

Entice Energy –

ESB Energy –

Eversmart Energy –

Extra Energy –

Fairer Power –

first:utility –

Flow Energy –

Foxglove Energy –

Future Energy – 

Gen4U –

GnErgy –

Go Effortless Energy –

Good Energy –

Green –

Green Energy UK –

Green.Energy 10,000

Green Network Energy –

Green Star Energy 

Gulf Gas & Power 

igloo.energy –

IRESA Limited –

iSupply –

Leccy –

Lumo –

LOCO2 Energy –

M&S Energy –

Nabuh –

npower Select –

Oink Energy –

One Select –

Orbit Energy – 

Out Fox the Market –

PFP Energy –

OutFox the Market –

Powershop –

Pure Planet 

Qwest –

Robin Hood Energy –

Sainsbury’s Energy –

Simplicity –

So Energy

Solarplicity –

Spark Energy –

Southern Electric –

Scottish Hydro –

Swalec –

Telecom Utility Warehouse  

Together Energy –

Tonik 

Toto –

Usio Energy Supply Limited – 

Yorkshire Energy –

Zog Energy

 

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The government’s cap is already rising by £139 to stop average standard variable tariff bills going above £1,277 from October 1, but energy experts have said the wholesale price rises mean the cap may have to be raised a further £280 in the new year. 

Emma Pinchbeck, chief executive of trade association Energy UK, said the immediate concern is about helping energy companies through ‘a really unprecedented time’.

She told GMB: ‘The immediate concern is about managing the vulnerability of our retail sector and making sure that customers are looked after through any unforeseen consequences of what is a really unprecedented time.’

Mr Kwarteng suggested that he is talking to Mr Sunak and Work and Pensions Secretary Therese Coffey on whether changes are needed to Universal Credit – with the £20 uplift brought in during the pandemic due to end.

He said: ‘You’re right to mention the National Insurance price tax rise, but of course that kicks in in April, so it’s not strictly a winter issue.

‘You’re also right to say that we face a global energy spike in terms of prices. But I’ve said that there are mechanisms in place now to protect consumers, I’ve been very clear that the energy price cap is staying even though some energy companies I read today are asking for it to be removed, I’ve been very clear that that’s staying, so we’re protecting customers there.

‘We’ve got the warm home discount, we’ve got winter fuel payments, which are again focused on the most vulnerable customers. So, we’re completely focused on helping vulnerable customers through this winter, particularly with regard to energy prices.’

Grilled on the issue of Universal Credit, he said: ‘It’s a difficult situation, it could be a very difficult winter.

‘That’s why, as energy minister, I’m very focused on helping people that are fuel poor. Universal Credit, you will know, is an issue for the Chancellor and the Work and Pensions Secretary, I’m speaking to them a great deal about it.’

On CO2 supplies, Mr Kwarteng said any support would be ‘temporary’. 

‘Time is of the essence, and that’s why I spoke to the CEO, speaking to him twice in the last two days, and we’re hopeful that we can get something sorted today and get the production up and running in the next few days,’ he said.

Mr Kwarteng said ‘it will come at some cost… it may come at some cost, we’re still hammering out details, we’re still looking at a plan’.

But he added: ‘I have to say if there is support provided, that will be on a temporary basis, that’s not something that we want to do indefinitely.’

Two sites in Teesside and Cheshire, run by US firm CF Industries, produce around 60 per cent of the country’s CO2 as a by-product from the manufacture of fertiliser. 

The gas is vital to the supply of food and is needed by hospitals and the nuclear industry. 

It is used as a preservative in fresh food packaging and in the transport of frozen goods – in dry ice form.

It is also used to stun chickens and pigs prior to slaughter.  

Ministers and industry figures have said there is no risk of the lights going out this winter, with energy supplies secure despite the rising costs.

The outspoken boss of Octopus Energy, Greg Jackson, one of the ten companies expected to survive, has said that ‘idiot companies’ who offered customers rock bottom prices without allowing for rises in global prices ‘don’t deserve’ to survive.

He added: ‘Make no mistake – there are real issues in energy caused by global gas and shortfalls in UK nukes – but the idea of ‘crisis’ is being pumped up by the former Big 6 in order to try to bounce govt and regulators into restoring the cosy oligopoly they used to enjoy’. 

Experts have said that Britain’s energy regulator must take responsibility for the crisis because their decision to open up the market to break up the Big 6’s control of the market has led to too many companies entering the market.

There were just ten in 2006 but this reached 70 in 2018 and is at 49 today, but this could be back at ten again in a year.   

Scott Byrom, Chief Executive Officer of TheEnergyShop.com said: ‘The reality is that Ofgem relaxed the requirements for new market entrants and I don’t believe that they have looked as carefully as they should have at the financial and organisational set up of some of these energy companies as well as their hedging strategies’, adding that he believes the rise of prices has meant that often poorly run businesses have gone bust. 

Mr Kwarteng told MPs last night that there is no danger of the ‘lights going out’.

The Business Secretary hit back at ‘alarmism’ amid mounting concerns about the consequences of soaring wholesale gas prices – up 250 per cent since January and 70 per cent since last month – that are sending providers to the wall and causing chaos for a range of industries.

Experts say that as well as spiralling bills for household energy – which for some could nearly double by April –  food supplies and even medical procedures are at risk as the pressures cause shockwaves across supply chains.

One consultant said the problems are so huge they could ‘easily see a three-day working week’ across affected companies this winter, evoking memories of the carnage in the 1970s. 

Mr Kwarteng said last night: ‘The Government will not be bailing out failed companies. There will be no rewards for failure or mismanagement.

‘The taxpayer should not be expected to prop up companies which have poor business models and are not resilient to fluctuations in price.’

He went on: ‘While we are not complacent we do not expect supply emergencies, this is a very important point. This is not a question of security of supply.

‘The Great British UK gas system has delivered securely to date and is expected to continue to function effectively with a diverse range of supply sources and sufficient delivery capacity to more than meet the demand.’

Mr Kwarteng said: ‘We have sufficient capacity, and more than sufficient capacity, to meet demand and we do not expect supply emergencies to occur this winter

‘There is absolutely no question of the lights going out or people being unable to heat their homes. There will be no three-day working weeks or a throwback to the 1970s.

‘Such thinking is alarmist, unhelpful and completely misguided.’

The bullish stance comes after Iceland supermarket boss Richard Walker told the BBC this morning that he was ‘shocked’ by how exposed the UK was to disruption. 

The Government is preparing to take over the running of small suppliers on the verge of collapse due to the crisis, which has seen wholesale gas prices increase by 70 per cent in a month. Bulb, an energy provider to 1.7million customers, is reportedly seeking a bailout.

It is exploring raising funds from investors or a potential joint venture or merger with another company, according to the Financial Times. A Bulb spokesman said: ‘From time to time we explore various opportunities to fund our business plans and further our mission to lower bills and lower CO2.’

There are concerns that energy regulator Ofgem may be unable to find companies willing to take over customers’ accounts if gas prices continue to rise.

In that scenario the government having to effectively nationalise firms, appointing a ‘special administrator’. 

Meanwhile, ministers have rejected calls for green levies to be removed from energy bills. They can account for a quarter of electricity costs. 

E.on UK boss Michael Lewis wants the renewable energy subsidies to be funded through general taxation instead. He has said that removing such additional costs is a ‘short-term imperative’ to help consumers during what is ‘going to be a very challenging winter’. British Gas owner Centrica has backed his stance.  

Ofgem tracking of the day’s ‘spot’ price on natural gas underlines the sharp rise in costs 

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