Those watching the news recently may have noticed some ongoing issues with the domestic energy supply market. Wholesale prices have soared, causing a number of smaller energy suppliers to go out of business and leaving Ofgem scrambling to find their customers a new home.
While there’s no need to panic and start stockpiling anything (please) it’s important to understand what is happening and why. It’s not always easy to get to grips with the ever-moving pieces of the energy industry (as well as geopolitical tensions), but we’ll do our best to get you up to speed.
Bitter winters and rising demand abroad
Asia saw a particularly cold winter in 2020 which resulted in a huge spike in demand for energy. This was combined with many countries reopening, naturally meaning that more electricity and gas was needed to fuel them as they awoke from a covid induced slumber. As much of the liquified gas is produced in Asia this means there were less energy reserves for Europe, which naturally caused the price to increase.
China of course plays a huge part in this as their energy requirements soar. Imports have skyrocketed, leaving even less energy for poor old Europe.
Gazprom accused of market manipulation
As energy supplies found their way to Asia over Europe, Russia was unable or unwilling to plug the gap depending on who you ask. Gazprom, the largest supplier of natural gas to Europe came under fire for seeming to do little to meet the skyrocketing demands of European nations. The EU has now called for an investigation to see whether this move was intentional, the accusation being that they purposefully held back energy supplies in order to keep the price high.
Gazprom and the Kremlin have naturally denied these accusations. Gazprom pointed to the fact that they had fulfilled their contractual obligations to Europe. Relations between the EU and Russia remain chilly at the best of times, and this is unlikely to do anything to warm the relationship.
Why things are especially bad for the UK
All of these factors mean trouble for Britain. What makes things worse is we have our own issues at home.
As with many problems in the UK, the weather is partially to blame.
One of the factors has been to do with our wind turbines, which as of June 2021 provided around 24% of electricity to our homes. Unfortunately, we have had an anticyclone lingering around western Europe since mid-August. This has caused calmer weather and less wind, driving electricity generation down. Unfortunately, this is just one part of the ‘perfect storm of factors’.
Secondly, we are heavily reliant on nuclear energy to power our country (around 25% of electricity currently comes from nuclear power). Unfortunately, many of our nuclear power plants are currently out of commission. This is due to urgent maintenance works that needed to be carried out.
We also saw maintenance works on several gas platforms in the North Sea, causing further outages.
And, as if this wasn’t enough, one of the main cables used to bring electricity to the UK from France recently caught fire.
UK heavily reliant on gas from Europe
The UK doesn’t have a lot of capacity for energy storage. That means we need a constant supply from our dear friends on the continent. Despite being one of the wealthiest and most populous countries, the UK stores only 1% of the natural gas in Europe and only 6% of our annual demand. As we are unable to stockpile much of our own, we are at the mercy of the market and any fluctuations.
So, what does this mean for the UK?
These various domestic and global factors has caused the cost of energy to absolutely skyrocket. In a nutshell our own inability to be self-sufficient, combined with rising prices in Europe and beyond have left us in a very precarious situation.
One thing we can be thankful for however is the energy price cap. This means that despite spiralling wholesale energy prices, our monthly bill cannot exceed a certain amount.
What this does mean however is that energy suppliers need to absorb all the cost. This has resulted in 9 energy suppliers going bust over the last month, with more expected to bite the dust if the crisis continues.
If your energy provider has gone out of business, then you can check out our helpful guide on what to do.