Kwasi Kwarteng says gas prices are ‘global issue’

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Millions of households face increased energy prices as the wholesale price of gas exploded by 250 percent since January. Smaller firms have already begun to face insolvency, with six going bust, leaving hundreds of thousands of homes facing a new supplier and potentially higher costs.

The rising cost of wholesale gas – up a shocking 70 percent since August alone – are putting pressure on the suppliers, who, under mandated energy price caps, are battling to afford the energy needed to power homes.

Many of the smaller firms have promised to sell gas to customers for less than it is now costing them to buy it, and without enough capital to plug the gap, they face insolvency.

Six firms have already folded in September – PfP Energy, MoneyPlus Energy, Utility Point, People’s Energy, Green, Avro Energy – and there are fears that more could follow, with Bulb and Igloo reportedly on the brink of collapse.

Business Secretary Kwasi Kwarteng has repeatedly said he does not want to prop up companies that have been badly run, adding there is “no reward for failure”.

Why have gas prices risen?

A ‘perfect storm’ of factors have led to the dramatic rise in prices.

This time of year usually sees a spike in the price of gas as temperatures cool and people begin to use heating and switch lights on earlier in the day.

But this year, it coincides with the economy opening up after lockdowns, so demand is extra high.

In addition to this, supply from Russia has dried up recently, and Asian demand has spiked due to increasingly cold winters.

Who are the big 6 energy companies?

The ‘big six’ energy companies are British Gas, EDF Energy, E.ON, npower, Scottish Power and SSE.

SSE is owned by OVO, npower is owned by E.ON and Scottish Power is owned by Iberdrola.

Since the gas sector was privatised in the UK, these six companies have dominated the market share.

Will the big 6 be hit by rising prices?

Big gas companies aren’t immune to the crisis, but are better placed to manage it than smaller firms with less capital.

Big companies could also be offered a Government-backed loan in return for taking on customers from smaller suppliers.

But prices in the big six still face a spike, and people who are automatically moved to bigger names from smaller companies going bust can expect to be moved to a higher tariff.

A lot of the smaller companies offered customers fixed rock-bottom prices to attract customers, and now are facing the consequences of that business model.

Could the big 6 go bust?

No, it’s not likely that the big firms will go bust, though prices are still expected to rise for customers within them.

Experts have said that Britain’s energy regulator must take responsibility for the crisis because their decision to open up the market to break up the big six’s control of the market has led to too many companies entering the market.

There were just ten in 2006 but this reached 70 in 2018 and is at 49 today, but this could be back at ten again in a year.

Scott Byrom, Chief Executive Officer of TheEnergyShop.com said: “The reality is that Ofgem relaxed the requirements for new market entrants and I don’t believe that they have looked as carefully as they should have at the financial and organisational set up of some of these energy companies as well as their hedging strategies.”

The outspoken boss of Octopus Energy, Greg Jackson, one of the ten companies expected to survive, has said that “idiot companies” who offered customers rock bottom prices without allowing for rises in global prices “don’t deserve” to survive.

He added: “Make no mistake – there are real issues in energy caused by global gas and shortfalls in UK nukes – but the idea of ‘crisis’ is being pumped up by the former Big 6 in order to try to bounce govt and regulators into restoring the cosy oligopoly they used to enjoy.”

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