UK energy crisis: Will my gas bills rise and what happens if my supplier goes bust?

The price of gas has soared in recent weeks, putting several energy suppliers out of business and forcing some factories to stop production.

The price of wholesale gas has surged by 250 per cent since the beginning of the year and added 70 per cent just since August, according to figures from Oil & Gas UK.

– Why are wholesale gas prices soaring?

There are many reasons for this. The economy is opening up from its pandemic lows, so demand for gas is increasing.

Europe is also about to start entering winter, when gas demand will be highest, especially from countries such as the UK which overwhelmingly rely on gas to heat homes.

But a perfect storm of other problems has also hit the sector. Supply from Russia has dried up recently, and demand is high in Asia which is putting pressure on international markets.

In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic.

In a further stroke of bad luck, cables that import electricity from France were damaged last week, and September has not been a very windy month. These problems have meant that more gas is needed to produce electricity.

– Will my energy bills rise?

It depends what kind of deal you are on. Prices were already set to rise for the 15 million households in Great Britain that are on their supplier’s default tariff because of a major hike in the energy price cap.

Regulator Ofgem had been criticised for the rise, which comes into force on October 1, however the price cap is now one of the better deals on the market.

Many other energy customers are locked into year-long deals which will fix their price for the 12 months of the contract. If your contract is coming to an end shortly you will probably have to change to a more expensive deal.

Ofgem has said consumers can expect an average price rise of £135 this winter.

– Why are energy suppliers going bust?

Simply speaking it is because many have promised to sell gas to customers for less than it is currently costing them to buy.

When they sign a fixed-term deal, households are promised that they will pay the same price for the gas and electricity they use during that entire period.

The energy suppliers expect the gas price to go up and down, and will often give themselves some headroom for rises.

But unprecedented recent price rises mean that a lot of customers are now paying suppliers less for energy than it costs the suppliers to buy that energy. Unsurprisingly this is not a viable business model.

So far five energy suppliers have gone out of business in recent weeks, with some predicting that dozens more could follow before the end of the year.

– What is hedging and why have so many energy suppliers not done it?

The energy suppliers that stay afloat are likely to be those that have hedged – a type of insurance which steps in if prices rise too much.

But like all insurance, hedging costs money. So many suppliers – who are living on razor-thin margins anyway – decide not to. Many of these are now paying the price.

– What should I do if my energy supplier goes bust?

Firstly, and most importantly, your gas and electricity supply will not be cut off.

There are tried and tested systems in place to make sure that no customer loses heat or power as a result of their supplier’s failure.

Your account will be reassigned to another company by the industry regulator Ofgem, known as a “supplier of last resort.”

This will almost always be one of the “Big Six” companies such as British Gas or EDF, but you will have no choice in which company will take over your account.

The new supplier will typically make contact in a few weeks. Customers are encouraged to take a photo of their gas and electricity meter readings in case there are any disputes when it gets in touch.

If you are in credit your new supplier will honour the balance and pay it back to you or take it off your first bill. If you are in debit you may have to pay back the amount you owe to the administrators of the failed supplier.

The bad news is that if you were on an advantageous fixed deal - the cause of the many of the problems for the companies that have gone under - you are likely to be moved on to a more expensive variable tarrif. However, the amount it can rise by is limited by the energy price cap, but this is set to go up sharply next month following a recent review of the cap by Ofgem.

Once the transfer to the new supplier is complete you are free to shop around for cheaper deals.

– Will fewer energy suppliers mean a worse deal for households?

Probably. Price comparison websites are showing little in the way of good deals at the moment. Regardless of what wholesale prices are doing, less competition could well mean fewer good deals in future as well. However this remains to be seen.

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