Why is there an energy crisis in the UK?

February 22nd, 2022
Why is there an energy crisis in the UK?

Consumers across the UK are at risk of increasing costs to compound the financial squeeze hitting households due to sustained, high rates of inflation. Twenty-three energy suppliers in the UK have gone bust since mid-2021. So why is there an energy crisis at the moment? What are the specific conditions making the UK energy crisis more pronounced than other countries? Should you switch to a fixed energy tariff to avoid price rises?

In this article, we’ll cover the main reasons for the UK energy crisis and what it means for consumers and businesses alike. We’ll also explain how the crisis is likely to affect you in the short and long term.

Why is there an energy crisis in the UK?

There have been energy problems worldwide since the onset of the global pandemic. In 2021, gas supply struggled as plummeting demand was immediately followed by record demand. International shortages were the result, pushing up prices for businesses and driving inflation across business sectors.

So, what does this have to do with the UK specifically?

The UK market has been severely affected by the global energy crisis for a number of reasons. Relatively low gas storage, an over-reliance on wind power during a time of unseasonably low wind and recent government energy policy have combined to create a perfect storm in the energy sector.

Since the start of the crisis, over 4 million consumers have been displaced to new suppliers under the SoLR (Supplier of Last Resort) process. Tariffs look set to return as early as February 2022, at which time consumers and businesses will be able to switch energy providers to get the best deal.

One of the main factors separating the UK from other jurisdictions is the energy price cap. Ofgem, the energy regulator, has signalled its commitment to maintaining the price cap. But what is it and why does it make such a difference?

What is the price cap, and why does it matter?

The price cap, introduced in January 2019, is an initiative designed to ensure that consumers don’t get penalised for staying with the same energy provider. The energy price cap was brought into law in the summer of 2021 and was also designed to insulate consumers from dramatic price increases during peak demand.

Unfortunately, the legislation has had unintended consequences. Limiting the amount suppliers can charge, coupled with sharply increasing prices, meant that smaller energy providers were locked into contracts where they were providing energy at an unexpected loss. Although exact details have yet to be announced, experts predict Ofgem to raise the current energy price cap by 50%.

No price cap for small businesses

The price cap doesn’t apply to small businesses, whose increases in energy costs are likely to be much higher. If small businesses aren’t careful, they could be significantly stung by dramatically increasing overheads which could put their profitability at risk, even as they try to recover from the pandemic.

According to Gazprom Energy, some of the most energy-intensive businesses* in the UK include:

  • Chemical manufacturing – 3,502 ktoe
  • Food, drink and tobacco manufacturing – 2,967 ktoe
  • Mineral products manufacturing – 2,582 ktoe
  • Mineral products manufacturing – 2,582 ktoe
  • Printing and publishing – 1,831 ktoe
  • Agriculture – 1,505 ktoe
  • Mechanical engineering – 1,513 ktoe
  • Iron, steel and metal manufacturing – 1,497 ktoe

*All estimates are given in ‘kilotonne of oil equivalent’ (ktoe).

How to save money on energy costs

With so much turbulence in the market, it’s not surprising that suppliers are currently not taking on new customers for the time being. Consumers have been unable to switch energy providers for the moment, but that won’t be the case forever.

The price cap is only set to last for six months. After the price cap expires, customers will be able to compare suppliers and switch to more competitive tariffs at the end of February. At the time of writing, the remaining energy suppliers are:

  • British Gas
  • EDF
  • Eon
  • Ovo
  • Octopus Energy
  • SSE
  • Shell Energy
  • Scottish Power

In the coming months, some customers will be able to switch providers again. However, penalty charges for exiting your agreement may apply. It’s best to check the terms in your contract.

Should I switch to a Fixed Energy Tariff?

At the moment, no. Fixed Energy Tariffs are likely to be a much more expensive option than a SVT (Standard Variable Tariff). You don’t have to switch to a fixed tariff, provided a supplier can offer a SVT, despite what some energy advisors may tell you over the phone.

What if an energy provider tries to force me into accepting a fixed energy tariff?

Energy suppliers can’t force you to accept a fixed energy tariff, provided they have a SVT to offer. If you’ve switched to a fixed tariff, you can cancel without incurring fees within 14 days of signing up. If more than 14 days have elapsed since you signed the agreement, you will probably have to pay exit fees.

I agreed to a fixed energy tariff. What can I do about it?

If an energy provider with a SVT signs you up for a fixed energy tariff, you can take a few actions. Firstly, it’s advisable to try to fix the problem with the supplier directly. You may find that you can switch to a SVT without too much trouble. Even if your attempt to rectify the issue with the energy provider is unsuccessful, it will show you tried to fix the issue yourself.

Should you be unable to resolve the issue within six weeks, you can raise a complaint with the Energy Ombudsman. The Energy Ombudsman is the Ofgem approved institution responsible for handling energy related disputes.

Weather the UK energy crisis by comparing services

Energy costs are going to rise for both consumers and businesses. For consumers, the increase of up to 50% will represent a significant rise in the cost of living next winter, but they can at least minimise their expenses by comparing tariffs when they come back into effect. Businesses will need to be especially wary of dramatically surging energy expenses.

It’s usually cheaper to switch energy providers, and that trend looks unlikely to change in the long term. Consumers and business owners alike should prepare to switch providers in March of this year. In the meantime, keeping an eye on the energy landscape is essential. The best way to do that is by using a free price comparison tool.

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For more advice, check out our detailed guides from Free Price Compare.

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