I’m sure you’re aware from the reports in the national press and mainstream media of the unprecedented spike in wholesale gas prices and are no doubt wondering why it’s happening and how it could affect you.
We’ve been investigating not just what might have caused prices to soar but also how the increase in gas prices is pushing up electricity costs.
Excessive Gas Prices
The recent rise in gas prices has made this year’s Energy Future for Europe (EFER) tender worth watching. Summer may be a time when countries restock their supplies, but with Russia providing less than usual because of competition from other markets like India and China – it could potentially provide some insight into how much they need next winter!
It also has a direct impact on electricity providers. As a lot of UK power comes from facilities fuelled by gas; any changes made now will have consequences across all industries involved with generating or consuming energy.
September has broken with tradition and there has been consistently low wind so far this month, compared to the previous five years on record. Low wind output combined with the other countries using more power than usual due to their increased use this summer has National Grid on edge. Although they usually have plenty of back-up generators to call on, it is not necessarily that simple.
Not Enough Generators?
In the UK, over 17 gigawatts (GW) of energy generation are currently offline. This amounts to about 22% or all that we have in this country’s fleet at any given time. And, unfortunately, it’s not just due to planned maintenance. Five nuclear reactors are also down and only two of these were planned. In mid-September a fire at a National Grid site in Sellindge near Ashford, caused a high-voltage power cable linking electricity supplies between the UK and France to be shut down.
As virtually all available generation is required to meet demand, margins are invariably going to be tighter which will ultimately lead to higher prices. Regrettably, the situation is also being manipulated to maximise profits. Generators are required to declare their projected output to National Grid ahead of time, and some fossil fuel plants have been using this process to leverage significant premiums, demanding up to £4000 per MWh at times of the day when demand is highest.
What Does All This Mean?
The price of power is reaching an all-time high, and it’s putting a huge burden on suppliers. If they haven’t already purchased the amount their customers are likely to use (known as hedging) then these extraordinarily high prices will have them paying up 10 times what we’ve seen over any last decade! Riskier approaches that have seen businesses looking for quick growth by offering cheap rates could also backfire, as Ofgem’s price cap could see suppliers being unable to recover costs.
With four energy companies going bust in the last two weeks and four more predicted to go bust next week, over half a million customers would be left without a supplier.
It’s clear that we need to redress the balance and not be so reliant on volatile fossil fuel markets, but one thing that we’re not sure of is when this change will start to take effect from.
If you are concerned about your energy costs and would like some help or advice, get in touch.