Energy Prices Set to ‘Blow a Hole’ in UK Consumers' Finances, Warn Analysts
05:45 GMT 07.10.2021 (Updated: 05:59 GMT 07.10.2021)
In September, the UK retail energy sector was plunged into a crisis after natural gas prices soared three-fold compared to what they were trading at in early 2021 amid global competition for supplies. Many consumers have been forced to switch to new suppliers after the collapse of a number of small utility firms.
Amid the persisting volatility of gas prices
and more firms going bust due to the crisis gripping the UK retail energy sector, consumers have been warned of imminently growing energy bills. The UK’s energy market price cap is expected to soar by £400 in the spring, reaching about 1,660 pounds ($2,254) per year in April, according to
energy market analysts Cornwall Insight Ltd.
Cornwall Insight’s previous forecast, issued in July, had estimated the spring price cap to reach 1,251 pounds. Commenting on the forecast made against the backdrop of record wholesale prices, Craig Lowrey, senior consultant at Cornwall Insight, said in a statement:
“These figures reflect material increases in the period since our most recent default tariff-cap forecast.”
The revised forecast represents a 30% increase from the current default-tariff cap of 1,277 pounds announced by regulator Ofgem
for the six months effective from 1 October 2021.
“With wholesale gas and electricity prices continuing to reach new records, successive supplier exits during September 2021 and a new level for the default tariff cap, the Great British energy market remains on edge for fresh volatility and further consolidation," added Craig Lowrey.
As he commented on Ofgem's latest default price cap, the Senior Consultant at Cornwall Insight explained that the new high has predominately been driven by the “sharp increase in wholesale gas and electricity markets.”
“With expectations of an economic rebound in response to an easing of lockdown conditions, record highs in the EU carbon market, rallying demand for liquefied natural gas in the Asia-Pacific region and concerns over the supply-demand balance for gas and electricity for this coming winter, we have seen a material rebound in the gas and electricity markets from their 2020 COVID-induced slump,” said Lowrey.
Revised Energy Price Cap
Ofgem had warned in the summer that the cap would go up driven by the steep rise in wholesale gas prices. The old cap stood at £139 for an average dual fuel customer paying by direct debit. As of 1 October, at least 15 million households in England, Wales, and Scotland face a 12% increase in energy bills. The bills will rise by £139 ($193) from £1,138 ($1,583) to a record high of £1,277 ($1,777) a year, according to the British energy watchdog.
The Energy Shop price comparison site
warned of greater increases to come if the current situation persists.
"While this month's energy price increase will blow an unwelcome hole in many people's finances, it is nothing compared to what is coming next. If things don't settle down soon, increases of £600, £700 or even £800 cannot be ruled out," said founder of the site, Joe Malinowski.
The constraints imposed by the price cap, according to analysts, resulted in 10 British energy suppliers collapsing
since August, amid record-high power and gas prices that they couldn’t pass on to consumers. The next updated price cap
will be announced in February, effective as of 1 April.
Growing energy demand amid an economic recovery after months of COVID-19 lockdowns, as well as a limited supply, have resulted in natural gas prices surging on the European market over the past few months.
On Wednesday, the price of gas futures in Europe broke a new record, exceeding $1,900 per 1,000 cubic meters, although it went down several hours later. UK consumers are facing soaring prices as many are forced to switch to new suppliers, offering a higher standard variable tariff, after several small utility firms pushing cheaper deals on the market, failed.
Ofgem data cited by The Guardian showed that 1.6m electricity and 1.2m gas customer accounts were in arrears at the end of July, with the average debt increasing by the end of July to reach £834 for electricity and £660 for gas.
Anita Dougall, the chief executive of Sagacity data firm, was cited as warning that the figures “provide a taste of things to come, as the number of people struggling to pay their energy bills is going to shoot up this winter … This means it will be more important than ever before for energy companies to deliver on their responsibility to support vulnerable customers.”