UK consumers and suppliers face hardships as energy prices soar

The UK is strongly affected by the wholesale energy prices rally that has been observed in the past months across Europe, experiencing a 75% average monthly increase between August-September 2021, the highest in the European market. The main reasons for this are the country's high dependence on natural gas (85% of households use gas for heating and 1/3 of country's electricity generation uses natural gas), the shortage of RES production due to the least windy summer since 1961 and the recent interconnector issue interrupting power supply from France.

As a result, 14 suppliers have exited the retail market recently, unable to find a way forward amid rising costs due to the increasing wholesale prices, while there are concerns that more could follow before the end of the year. Ofgem, however, is securing all consumers’ seamless energy supply by transferring those left without a supplier to another company or the supplier of last resort.

The price cap, a governmental scheme which protects consumers under standard variable or default contracts, has been set to its highest ever level starting from 1 October 2021, that is 12% higher compared to the previous price cap and will be reviewed again by Ofgem in six months. Following this increase, the country’s biggest suppliers have already announced price increases on their standard offers to the maximum price allowed. Meanwhile, fixed contracts have skyrocketed and thus suppliers and price comparison tools advise consumers to stay on their current contracts, especially if they are on fixed deals concluded before the recent months’ hike, while there are even cases that suppliers have announced that they currently do not accept any new customers. Hence, although the price cap has only increased by 12%, the extinction of cheap fixed contracts from the market has led to increases as high as 19% and 51% for typical residential electricity and natural gas customers, respectively.

Author: Ioannis Korras, Energy Market Analyst 

Sources:

[1] Uswitch: “What's happening in the energy market? Your questions answered.”, 01.10.2021

[2] BBC: “Why are gas prices so high and what is happening to fuel bills?”, 12.10.2021