Yahoo Finance Energy crisis Q&A: We answer your questions on how the rising gas prices will impact you
This week began with British manufacturing leaders fearing an industrial collapse over the winter as spiralling gas and electricity prices overwhelm the country’s energy defences. Wholesale energy prices have rocketed to 11 times above normal levels – a record high – and higher costs are set to be passed onto consumers.
The Business Secretary, Kwasi Kwarteng, is under growing pressure from energy companies to scrap the price cap. However, Mr Kwarteng insisted the cap will remain in place, assuring consumers that their bills would not rise as a result of the gas crisis.
Your questions on the energy crisis and how it will impact you were answered by our Energy Correspondent, Rachel Millard and our Personal Finance Reporter, Will Kirkman , at noon on September 22 during a live Q&A. You can find a recap of Wednesday's Q&A below.
Why has our Government ignored gas storage?
Q: I do not understand why our Government has ignored gas storage which is a must when dealing with Putin?
A: responds: I think many would agree with you here. I think the Government’s view has been that we can manage without much storage due to our own supplies, shipments from around the world, and pipelines to Europe and Norway. It will be interesting to see whether the current situation, with gas in short supply globally, will force a re-think.
Shouldn’t we have been investing more in nuclear power years ago?
Q: I agree that more electricity generated by nuclear power would ease our energy woes, but shouldn't we have been investing more in this years ago, instead of waiting for a crisis? The writing has been on the wall for an energy crisis for at least ten years.
A: Many in the energy industry would agree that we have been slow to invest in new nuclear. Most of the current ageing fleet is set to shut down by the end of the decade, many within the next few years. Nuclear currently provides about 18pc of our power, so that is a problem.
Developers are not keen on the sector, however, given the projects are so expensive, long-running and risky. Nor has the Government wanted nuclear on its balance sheet, for the same reasons. Hopes that other technologies can pick up the slack have also led to indecision.
South Korea and Japan’s Toshiba have both looked at developing new nuclear stations in the UK, but have been put off by high costs. EDF and its Chinese partner CGN are the only ones building new nuclear plants - currently building Hinkley Point C in Sussex.
The Government is now looking at a new financing mechanism which should lower financing costs, helping to attract new development. But yes, many would agree this should have been done years ago.
Why haven’t UK governments since the 1970s invested in new electricity power generation plants and why have they allowed a reliance on foreign generated electricity and renewables?
Q: Why have successive governments since the 1970s refused to invest in new electricity power generation plants, especially nuclear power stations, to provide base (core) power capacity? Also, why have they allowed a reliance on foreign generated electricity with interconnector submarine cables which can be cut off and give foreign powers political leverage upon Britain? Why have the later governments allowed a false reliance upon so-called renewables that are variable and unreliable in power generation?
A: The Government has brought forward new nuclear investment in the Hinkley Point C nuclear power station which EDF and CGN are building in Somerset, set to provide electricity for about six million homes, backed by government guarantee on electricity prices. It has also subsidised the shift from coal to biomass at Drax, for example, meaning those are still providing stable power without the carbon emissions from coal.
But it’s fair to say that in recent years there has been a big push on renewables such as wind and solar power. I think the Government considers the variability of these sources can be managed by using batteries, interconnectors and gas-fired generators, for example. They are very keen on interconnectors as a way of helping balance the power system, and I think would argue that the risk of these being cut off by foreign powers is low given there is a degree of mutual dependence.
That said, we have seen the interconnector to the Irish (single) electricity market cut off in recent weeks due to power shortages there. And power access to the continent was used as a negotiating tool in Brexit talks, so it’s not without risk.
Are companies still allowed to offer deals to new customers that aren’t available to existing ones?
Q: I thought that companies had been stopped from offering deals to new customers that are not available to existing ones. Yet Shell is offering a two-year fixed deal to new customers that is not on offer to existing ones which makes a difference of over £20 per month. Is this allowed?
A: I think this is the case for insurers via new rules imposed by the Financial Conduct Authority under a so-called loyal penalty ban. This meant that new customers/renewing customers get given the same prices.
There is no such ban in the energy industry unfortunately, and it has been common practice (until the past couple of weeks!) for new customers to get cheaper rates than those on older deals and standard tariffs. There have been rules to ensure customers are offered cheaper, fixed price deals versus a provider’s standard tariff but no rules on anything to do with new/existing customers.
At the moment, it seems the opposite and new customers locking into multi-year deals are facing much higher prices than existing customers or those on standard tariffs (because of the price cap).
This Shell deal is either an anomaly or a rate that’s higher than Shell’s standard tariff, so be wary before signing up for a long time right now.
Why have we got a gas shortage when there is UK gas in the North Sea?
Q: Please can you explain why we have a gas shortage when there is UK gas in the North Sea? Are we solely reliant on Europe for gas from Russia? Is there a plan to become self- sufficient in this area?
A: The North Sea produces about half of the UK’s gas. We import about one-third from Norway and the rest comes from pipes to the continent and in shipments from places such as Qatar, Russia and the US.
Europe, in turn, imports about 40 per cent of its gas from Russia. So Britain does not directly depend on Russian gas, but is connected to the European market which does. Prices in Britain closely track prices in the continent given the connections in the market.
Gas is a global market, and prices are going up globally due to supply and demand: Demand is growing as countries re-open from the pandemic (and other reasons), while some fields are also offline for maintenance.
What happens if energy companies fail?
Q: What happens if energy companies fail? Are gas supplies to the UK likely to be affected?
A: Suppliers that sell gas and electricity to households are most likely to be facing difficulties due to the current crisis, as they cannot pass on all of the costs to households due to the energy price cap.
If a supplier fails, Ofgem, the regulator, finds a new supplier to take on their customers. This means there is no risk to the customer’s supplies, although they might find themselves on a more expensive deal.
None of this affects gas supplies to the UK. Gas supplies are tight globally, which means prices are going up. Officials expect there will be enough to meet needs - albeit at a price.
Why are we not investing in tidal power when we are an island nation?
Q: Why are we not investing in tidal power? No one appears to be aware we are an island nation with constant wave power. It can't be costly, as wave power is constant unlike wind?
A: There are a few small tidal power projects (such as Orbital Marine Power’s project in Orkney) but large scale projects have struggled to get off the ground - they are expensive, difficult and have a big impact on marine life. In 2018 the Government rejected plans for a tidal lagoon in Swansea as too expensive.
It’s not off the table, however, the Government said in its core energy strategy paper in December: "We will consider the role of wave and tidal energy, following further evaluation of the commercial and technical evidence."
12:18 PMThank you for all your questions
Thank you for all your questions
That's a wrap. Thank you to those of you who sent in a question and apologies to those of you who did not get an answer. We'll be back again to answer more of your questions very soon.
We will post a recap of the best questions and answers from this Q&A at the top of this article page
12:16 PMWhy can’t we recommission coal and gas plants?
Why can’t we recommission coal and gas plants?
A great final question to wrap up our Q&A today from John Kirk.
John would like to know: Why can’t we recommission coal and gas plants? There has not been a coherent energy strategy for over 20 years.
Rachel responds: Gas is still used to generate a huge amount of our electricity - almost 40pc across the year (and 40pc right now). As for coal, the UK has been phasing out coal due to carbon emissions and there is no appetite to reverse this decision given the pressure over climate change, particularly with the Cop26 climate change conference coming up in Glasgow. There are still some coal-fired power stations running (and used recently), but it’s unlikely developers would want to re-start those that have been closed, even given demand for power now, as they know that in the long run the fuel is on the way out.
12:15 PMWhy haven’t energy price caps been scrapped?
Why haven’t energy price caps been scrapped?
Chakin Miraoui has a couple of questions on energy price caps.
Chakin asks: Why hasn't the Government scrapped Theresa May's energy price caps? Which one of the two ways costs Britain more: scrapping the earlier energy price cap for flat rates, or lending to energy companies?
Rachel says: I think the Government sees the price cap as providing very important protection to consumers. It is at least holding back for now the pain households are feeling from the soaring wholesale gas prices.
That said, it is, as you note, making life very difficult for some energy companies, particularly those that have been unable to buy gas in advance to lock in cheap rates.
I think the sad truth is that consumers / taxpayers will end up paying both higher rates for energy and the cost of failed suppliers:
The price cap is likely to go up in April to reflect current wholesale rates. But this is unlikely to come quickly enough for many companies who are likely to collapse in coming weeks. And as you note, the Government is considering supporting larger companies to pick up failed suppliers’ customers. So, costs all round…
12:12 PMAre companies still allowed to offer deals to new customers that aren’t available to existing ones?
Are companies still allowed to offer deals to new customers that aren’t available to existing ones?
Deborah Hicks asks: I thought that companies had been stopped from offering deals to new customers that are not available to existing ones. Yet Shell is offering a two-year fixed deal to new customers that is not on offer to existing ones which makes a difference of over £20 per month. Is this allowed?
Will says: I think this is the case for insurers via new rules imposed by the Financial Conduct Authority under a so-called loyal penalty ban. This meant that new customers/renewing customers get given the same prices.
There is no such ban in the energy industry unfortunately, and it has been common practice (until the past couple of weeks!) for new customers to get cheaper rates than those on older deals and standard tariffs. There have been rules to ensure customers are offered cheaper, fixed price deals versus a provider’s standard tariff but no rules on anything to do with new/existing customers.
At the moment, it seems the opposite and new customers locking into multi-year deals are facing much higher prices than existing customers or those on standard tariffs (because of the price cap).
This Shell deal is either an anomaly or a rate that’s higher than Shell’s standard tariff, so be wary before signing up for a long time right now.
12:07 PMWill we start fracking?
Will we start fracking?
Isobel Wilson would like to know: Are we now going to start fracking to get hold of our own gas?
Rachel says: There was a big push on fracking for shale gas a few years ago in an effort to boost UK supplies. But a moratorium was introduced in 2019 following tremors at some of Cuadrilla’s sites in Lancashire. The Oil and Gas Authority said it was “not currently possible to accurately predict the probability or magnitude of earthquakes linked to fracking operations.”
Since then, pressure to cut use of fossil fuels due to carbon emissions has only increased, with huge opposition from some quarters even to gas production in the North Sea. For those reasons, and given the Government sees the current gas price spikes as a short-term issue, I think it very unlikely that the ‘dash for gas’ as it was known would return.
12:02 PMWhy has our Government ignored gas storage?
Why has our Government ignored gas storage?
Our next question concerns gas storage.
Graham Norman asks: I do not understand why our Government has ignored gas storage which is a must when dealing with Putin?
Rachel responds: I think many would agree with you here. I think the Government’s view has been that we can manage without much storage due to our own supplies, shipments from around the world, and pipelines to Europe and Norway. It will be interesting to see whether the current situation, with gas in short supply globally, will force a re-think.
11:58 AMWhy haven’t UK governments since the 1970s invested in new electricity power generation plants and why have they allowed a reliance on foreign generated electricity and renewables?
Why haven’t UK governments since the 1970s invested in new electricity power generation plants and why have they allowed a reliance on foreign generated electricity and renewables?
Douglas Denny has a couple of questions he would like to be answered.
Douglas asks: Why have successive governments since the 1970s refused to invest in new electricity power generation plants, especially nuclear power stations, to provide base (core) power capacity? Also, why have they allowed a reliance on foreign generated electricity with interconnector submarine cables which can be cut off and give foreign powers political leverage upon Britain? Why have the later governments allowed a false reliance upon so-called renewables that are variable and unreliable in power generation?
Rachel says: The Government has brought forward new nuclear investment in the Hinkley Point C nuclear power station which EDF and CGN are building in Somerset, set to provide electricity for about six million homes, backed by government guarantee on electricity prices. It has also subsidised the shift from coal to biomass at Drax, for example, meaning those are still providing stable power without the carbon emissions from coal.
But it’s fair to say that in recent years there has been a big push on renewables such as wind and solar power. I think the Government considers the variability of these sources can be managed by using batteries, interconnectors and gas-fired generators, for example. They are very keen on interconnectors as a way of helping balance the power system, and I think would argue that the risk of these being cut off by foreign powers is low given there is a degree of mutual dependence.
That said, we have seen the interconnector to the Irish (single) electricity market cut off in recent weeks due to power shortages there. And power access to the continent was used as a negotiating tool in Brexit talks, so it’s not without risk.
11:54 AMIf my current supplier ceased trading, and we were transferred to, say, British Gas, would British Gas be legally forced to keep our current low KWH unit prices, until our original two year contract expires?
If my current supplier ceased trading, and we were transferred to, say, British Gas, would British Gas be legally forced to keep our current low KWH unit prices, until our original two year contract expires?
Our next question is a personal one from Mike Bryan.
Mike asks: We subscribed to a two year fixed-term deal in January 2021 for economy 7 electricity. We have no gas and the KWH unit prices are very low compared to the current rate. If my supplier ceased trading, and we were transferred to, say, British Gas, would British Gas be legally forced to keep our current low KWH unit prices, until our original two year contract expires in January 2023?
Our personal finance reporter, Will Kirkman, says:
Good question and this is a bit of a confusing area. When you are moved to a new supplier, by Ofgem, you will initially put on what’s known as a ‘deemed’ contract.
These do not have to match your existing deal, so your bills could go up in the following month. The regulator has always said it will try and get “the best possible deal" for you if you’re in this situation”. Best practice has been for the new supplier to honour the existing prices for a short period until a customer can change, but this isn’t always possible. If, for example, a provider today took in 50,000 customers and charged them incredibly low prices it never thought affordable, it would simply be taking on customers at a loss because the regulator asked it today.
As soon as you’re contacted by a new supplier, ask to be put on the cheapest tariff or shop around and switch, as soon as you can. You won't be charged exit fees for leaving a deemed contract.
11:47 AMWas it a mistake to leave the Rough offshore gas facility in commercial hands?
Was it a mistake to leave the Rough offshore gas facility in commercial hands?
An interesting question from Jim Heppell regarding the Rough offshore gas storage facility.
Jim asks: Your mention of the vast Rough offshore gas storage facility suggests it was a mistake to leave this in commercial hands? Would it have made a difference if the Government had kept the store full and operational?
Rachel answers: The UK can store less than two per cent of annual gas demand, which many believe leaves it much more vulnerable to price spikes of the sort we are seeing now.
Rough, which was closed by owner Centrica in 2018 as uneconomic, could cover about ten per cent of peak winter demand.
But analysts say if it was still open now it would only have a modest dampening effect on price. A lot more storage would be needed to be really making a difference now.
11:43 AMWhy are we not investing in tidal power when we are an island nation?
Why are we not investing in tidal power when we are an island nation?
Our next question from Duncan concerns tidal power.
Duncan Mitchell asks: Why are we not investing in tidal power? No one appears to be aware we are an island nation with constant wave power. It can't be costly, as wave power is constant unlike wind?
Rachel responds: There are a few small tidal power projects (such as Orbital Marine Power’s project in Orkney) but large scale projects have struggled to get off the ground - they are expensive, difficult and have a big impact on marine life. In 2018 the Government rejected plans for a tidal lagoon in Swansea as too expensive.
It’s not off the table, however, the Government said in its core energy strategy paper in December: "We will consider the role of wave and tidal energy, following further evaluation of the commercial and technical evidence."
11:39 AMWhat happens if energy companies fail?
What happens if energy companies fail?
Our next question comes from Caroline who wants to know what happens if energy companies fail.
Caroline Lace asks: What happens if energy companies fail? Are gas supplies to the UK likely to be affected?
Rachel responds: Suppliers that sell gas and electricity to households are most likely to be facing difficulties due to the current crisis, as they cannot pass on all of the costs to households due to the energy price cap.
If a supplier fails, Ofgem, the regulator, finds a new supplier to take on their customers. This means there is no risk to the customer’s supplies, although they might find themselves on a more expensive deal.
None of this affects gas supplies to the UK. Gas supplies are tight globally, which means prices are going up. Officials expect there will be enough to meet needs - albeit at a price.
11:31 AMWhy have we got a gas shortage when there is UK gas in the North Sea?
Why have we got a gas shortage when there is UK gas in the North Sea?
Up next is a great question from William Prince concerning the UK’s gas in the North Sea and our reliance on other countries.
William asks: Please can you explain why we have a gas shortage when there is UK gas in the North Sea? Are we solely reliant on Europe for gas from Russia? Is there a plan to become self- sufficient in this area?
Rachel responds: The North Sea produces about half of the UK’s gas. We import about one-third from Norway and the rest comes from pipes to the continent and in shipments from places such as Qatar, Russia and the US.
Europe, in turn, imports about 40 per cent of its gas from Russia. So Britain does not directly depend on Russian gas, but is connected to the European market which does. Prices in Britain closely track prices in the continent given the connections in the market.
Gas is a global market, and prices are going up globally due to supply and demand: Demand is growing as countries re-open from the pandemic (and other reasons), while some fields are also offline for maintenance.
11:25 AMWhy is the Government not looking at reliable alternatives, before implementing a transition to renewable energy?
Why is the Government not looking at reliable alternatives, before implementing a transition to renewable energy?
Another great question next, this time from Sandra Skinner.
Sandra asks: Why is this Government not looking to clean coal energy production, increasing our own North Sea provision and local small scale nuclear power and ensuring a 'reliable' self-sufficient energy supply before implementing a slow transition to renewables?
Rachel says: I think the Government is trying to maintain reliable energy supplies at the same time as shifting to renewables. Whether the pace is correct remains to be seen and subject of debate.
Coal-fired power generation has been ruled out beyond 2024 due to its carbon dioxide emissions.
About 70pc of the UK’s oil and gas does come from the North Sea. Production there is set to continue, but given that the Government is also trying to cut use of fossil fuels - by introducing electric cars, for example - it is unlikely to push for increased production.
Added to that, the basin is long past its heyday, with new reserves harder to find. Major oil and gas producers have been moving to other parts of the world.
11:20 AMWhy doesn’t the Government scrap VAT on fuel?
Why doesn’t the Government scrap VAT on fuel?
Neil Kerr would like to know: Why doesn't the Government abolish the 5% VAT on fuel prices?
Rachel responds: The Government has said it views the current energy price spikes as a short-term problem that is likely to be resolved by the market - suggesting they don’t see the need for drastic measures such as cutting VAT.
Abolishing VAT on fuel might also be controversial given the longer term pressure to cut fossil fuels due to carbon emissions. Before this immediate crisis, there were calls from some quarters for the Government to raise VAT on fuels to the standard 20 per cent, to encourage the switch to cleaner fuels.
11:14 AMShouldn’t we have been investing more in nuclear power years ago?
Shouldn’t we have been investing more in nuclear power years ago?
Up next is a question from Alan Hilton about electricity generated by nuclear power.
Alan asks: I agree that more electricity generated by nuclear power would ease our energy woes, but shouldn't we have been investing more in this years ago, instead of waiting for a crisis? The writing has been on the wall for an energy crisis for at least ten years.
Rachel says: Many in the energy industry would agree that we have been slow to invest in new nuclear. Most of the current ageing fleet is set to shut down by the end of the decade, many within the next few years. Nuclear currently provides about 18pc of our power, so that is a problem.
Developers are not keen on the sector, however, given the projects are so expensive, long-running and risky. Nor has the Government wanted nuclear on its balance sheet, for the same reasons. Hopes that other technologies can pick up the slack have also led to indecision.
South Korea and Japan’s Toshiba have both looked at developing new nuclear stations in the UK, but have been put off by high costs. EDF and its Chinese partner CGN are the only ones building new nuclear plants - currently building Hinkley Point C in Sussex.
The Government is now looking at a new financing mechanism which should lower financing costs, helping to attract new development. But yes, many would agree this should have been done years ago.
11:08 AMWhy is the UK’s day ahead energy price double that of other countries’ and how does this impact the competitiveness of the UK manufacturing industry?
Why is the UK’s day ahead energy price double that of other countries’ and how does this impact the competitiveness of the UK manufacturing industry?
Our next question comes from Rob whose question concerns the UK’s day ahead energy price and its impact on UK manufacturers.
Rob Lumley asks: How come the UK's day ahead energy price is double every other country’s? Is this down to a UK storage capacity issue? How can the UK manufacturing industry be competitive if our prices are twice that of our competitors based in Europe?
Rachel says: Wholesale electricity prices in Britain have historically been higher than Europe because a lot of British electricity (c40pc) is made from gas, versus cheaper coal and nuclear on the continent.
Britain also applies an extra tax on carbon emissions from electricity generation, and has had less capacity for electricity imports, though this is changing.
This gap has been worsened in the current crisis because gas has become so expensive. Britain is also more reliant on wind power (c.20pc of the mix), but wind speeds have been low in recent weeks. Added to that, some nuclear plants are offline for maintenance.
Higher electricity prices in Britain have long been a major source of complaint for manufacturers, and many say they cannot be competitive. The steel sector, in particular, has been pushing the Government for years to try and reduce prices for industry.
11:02 AMWill the Government be monitoring the performance of heat pump central heating systems?
Will the Government be monitoring the performance of heat pump central heating systems?
Right, let's get started. Our first question comes from David Sayers and is an interesting one regarding government monitoring.
David asks: Will the Government be accurately monitoring the performance of recently installed heat pump central heating systems over this winter? I bet they won't, because the results would be so dismal in comparison with gas powered systems.
Here's what Rachel Millard, our Energy Correspondent, has to say:
This is an interesting question. I’m not aware of any central plans to monitor systems but hopefully suppliers will be doing so and will share this with officials designing policy. Have you tried a heat pump and found it dismal?
10:45 AMQ&A in 15 minutes
Q&A in 15 minutes
Afternoon everyone. This Q&A will start in 15 minutes. Our Deputy Personal Finance Editor, Taha Lokhandwala, and our Energy Correspondent, Rachel Millard, will be answering your questions on the energy crisis and how it will impact you.
If you have a question, please leave it in the comments section below. Thanks to those of you who have already submitted a question, we'll do our best to get through as many questions as possible.
