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Gas Prices

Gas prices: Why are they so high and what is the energy price cap?

The recent rises in gas are all over the news right now, and its due to a massive rise in the price energy suppliers pay for gas.

Why are gas prices so high?

Unfortunately there’s been a worldwide squeeze on gas and energy supplies caused by;

  • A cold winter in Europe last year that put pressure on supplies and, as a result, stored gas levels are much lower than normal
  • There’s been increased demand from Asia (which also suffered a cold winter) for liquefied natural gas.

This has helped push up gas prices in the UK, Europe and Asia. Since January, they’ve risen 250%. Prices have soared 70% from August alone. In the UK, most big domestic suppliers buy gas months in advance – so they have yet to pass on the price rises of the past few months. Many customers are also on fixed tariffs so, until the tariffs run out, bills won’t go up.

What is the energy price cap and how is it going up?

The energy price cap is a backstop introduced in January 2019 and set by the regulator Ofgem under government policy.

It sets the maximum price suppliers in England, Wales and Scotland can charge customers on a standard – or default – tariff.

A higher cap is due to come into force from 1 October, with about 15 million households facing a 12% rise in energy bills. Because energy firms are now scarcely making a profit on gas, it’s likely the energy “cap” will rise again in April.

Why is this affecting the UK in particular?

Gas prices are rising all across Europe, but there are extra reasons why the UK is hard hit:

  • The UK is one of Europe’s biggest users of natural gas – 85% of homes use gas central heating, and it also generates a third of the country’s electricity
  • Supplies of renewable energy are down because it’s been the least windy summer since 1961.
  • A fire at a National Grid site in Kent closed a power cable supplying electricity from France

Energy Suppliers going bust…

Since the wholesale gas prices started to spike, a number of firms have collapsed due to financial pressure. Either they have been unable to pay higher wholesale prices or get customers on fixed tariffs to share the burden by increasing bills.

At the beginning of 2021 there were 70 UK energy suppliers. Now, there are just over 30. Industry sources have said there may be as few as 10 left by the end of the year.

Market highs will lead to some of the most expensive winter energy bills in the past 10 years.  The energy regulator, Ofgem, said last month that default energy tariffs would climb by 12.5% on average to take account of the fast-rising energy market prices between February to July. The further rise of the energy markets since then means it is expected to raise energy bills again from April.

Even fixed-rate energy deals are becoming more expensive. Many one- to two-year deals are now priced above default tariffs in anticipation of rising costs in the future.

If you were with a small operator that has gone bust, the regulator has a process to reassign customers to a new supplier.

If you would like advice about the situation, contact our Energy Team on 01268 495555 or email energy@adsi.co.uk

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