Energy crisis – how it affects you and your family

We take for granted that the lights will always come on when we press a switch and that the central heating will work as summer gives way to the colder days of autumn. However, those certainties seem a little less so in the wake of the news of wholesale price surges in energy costs.

At the heart of the issue is not a shortage, but a lack of gas being produced in sufficient volumes, unexpected extra demand as the country gets back to work after the pandemic, and the shortage of storage capacity. With demand across the world increasing and production not yet back at pre-pandemic levels, inevitably prices have rocketed.

Wholesale prices have increased by approximately 250% since the start of the year and that has caused a ripple effect as many energy firms have had to pay the higher price because they did not buy enough gas at lower prices before prices went up. For many of their customers who are on fixed rate tariffs or where the cost of wholesale gas is exceeding the government controlled price cap, this means that inevitably those firms will cease trading.

The past eight weeks have seen a number of smaller energy companies go bust and Ofgem, the energy regulator, has ensured that customers of failed energy companies have been moved to larger suppliers. However, there is no guarantee that the tariffs offered by replacement suppliers will mirror what consumers had with their old supplier.

Unless consumers are on a fixed tariff the price they pay will increase and at the end of any fixed price tariff they will find it difficult to avoid a large increase in cost. In addition this is likely to have a knock on effect on electricity costs, as much electricity is generated by plants powered by gas.

At the time of writing, there is no clear indication when prices will stabilise and start to fall. In the meantime, the government is working with suppliers and Ofgem to ensure that customers whose suppliers go bust are placed with an alternative supplier.

What can householders do?

• If your supplier goes into administration, don’t panic. A new supplier will take over your account.
• If you have not got a fixed price tariff, your exposure to higher costs is limited by the ‘energy price cap’ set by Ofgem in consultation with the government. However, the energy price cap rose to £1,138 from 1 April – a £96 rise for “medium” energy users. From 1 October, another 12 per cent increase will come into effect, with the cap rising to £1309. This will affect around 11 million households.
• Consumers can still switch suppliers but the number of alternative sources is now quite limited and it is likely that lower fixed price tariffs and cheaper deals will not be available for some time.
• The important thing is to stay calm and not to do anything in haste. Price rises are inevitable in the short term, however it is likely that as the supply side is scaled up, prices will fall. We just cannot predict when.
• For people experiencing payment difficulties, there is help available. The Warm Home Discount – https://www.gov.uk/the-warm-home-discount-scheme is there for those that qualify from 18th October, as well as winter fuel payments for those on the state pension or in receipt of another social security benefit.
• If you are in any doubt, contact your supplier who will be able to talk you through available options.

Published: 01 October 2021