No Energy: The Domino Effect hitting the UK’s Energy Industry

October 6, 2021

2 min read

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What's going on here?

The UK’s energy industry is under threat as a wave of companies collapsed after a surge in natural gas prices hit Europe.

What does this mean?

At the start of 2021, the UK had access to 70 energy suppliers. However, it is warned that by the end of 2021, there will be fewer than 10 remaining. Gas prices in the UK alongside the rest of Europe have hit a staggering new high because of a multitude of reasons. Primarily, the previously cold winter has left stocks lower than usual, there has been scarce supply from other countries and there has been an uptick in demand for liquified natural gas from Asia. Additionally the renewable energy sector has been unable to help save demands as they have suffered from low winds and outages at nuclear plants. 

Nevertheless, the real problem lies with energy firms’ consumers and how this will affect the contracts they have entered into. Currently, customers are protected from fluctuations in wholesale gas prices by the ‘energy price gap’. This is the maximum price a customer may be charged on a standard tariff. However, this cap has meant that smaller firms have had to go bust and their customers have had to be transferred over to a new supplier by Ofgem. This means that affected customers will face more expensive providers which could lead to public outrage and financial troubles as another winter rolls in.

What's the big picture effect?

The incoming energy crisis has the potential to uproot the current system for regulating the collapse of energy companies within the UK. Although the Government’s energy price cap intends to protect customers from the fluctuating market, it inevitably causes firms to lose huge sums of money regardless of whether a smaller firm must collapse or a larger firm has to take on new customers.  The crisis has shed light on an industry which has turned a “blind eye” to smaller firms and instead, has turned towards a “selective monopoly”. It is likely that large swaths of litigation will follow if the government does not adequately step in and find a new way to regulate the energy price cap. 

Another worrying effect of the increase in gas prices is that food producers have warned that supplies of meat, fizzy drinks and poultry could soon suffer. The rise in gas prices has meant that two large fertiliser plants who produce Carbon Dioxide have had to close their doors. Carbon Dioxide is crucial to the ‘humane’ slaughter of livestock and is used in extending the shelf-life of products. As a result, the British Meat Processors Association has warned that meat manufactures have 5 to 15 days left of meat supply. This is extremely worrying as supermarket supplies have already been affected by the decrease in HGV drivers, COVID-19, and Brexit (read our report on that here)

Consequently, the Government is right in suggesting “we must prepare for the worst” as energy companies continue to collapse at a rapid rate as prices continue to rise. Hence, will it take a Christmas miracle to warm people’s homes, save the food industry, and avoid public outcry in time for another winter?

Report written by Sofia Antipatis

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