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Why the UK is facing an energy crisis and what it means for your gas and electricity bills

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·4-min read
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File photo dated 08/02/2007 of a gas hob with a bill from British Gas, whose owners, Centrica, are to cut thousands of jobs after a strategic review which will see its workforce cut by 10\%.
The government is set to hold crisis talks with British Gas owner Centrica. Photo: Getty

The government is looking at providing crisis loans for energy firms, in a move that would help gas companies stay afloat amid surging prices. 

Energy industry bosses from firms such as British Gas owner Centrica (CNA.L) and E.On are set to meet with business secretary Kwasi Kwarteng on Monday. 

Smaller firms are facing backlash from customers, having made price promises which will be impossible to keep in the current climate. This could damage competition — at the start of the year there were 70 energy suppliers in the UK. This number could dwindle to 10 by the end of the year, industry sources told the BBC

Benchmark natural gas prices in the UK and in Europe have tripled this year, and the rise in prices will mean higher energy costs for companies and more expensive bills for consumers.

The surge is set to eat into the profits of several energy firms over the coming months, and pressure net profit margins which are already at their highest since 2008.

Reasons behind the dramatic increase in power prices include low gas reserves, strong commodity and carbon prices, heightened global demand and low wind output.

Read more: Top tips to avoid October price rise and save on energy bills

At the same time, a prolonged winter in Europe and Asia has drained storage levels.

Some MPs have called for nationalisation of the gas grid, rather than simply a bailout. 

Prime minister Boris Johnson dubbed the problem "temporary" and said that he was "very confident" in the UK's supply chains. 

The moves led to a 1.1% fall in the National Grid's (NG.L) stock price on Monday morning in London. 

National Grid stock wavered on Monday morning in London as crisis talks were planned. Chart: Yahoo Finance UK
National Grid stock wavered on Monday morning in London as crisis talks were planned. Chart: Yahoo Finance UK

Will gas and electricity bills increase?

The surging price of natural gas could send UK energy bills soaring and force energy-intensive industries to limit production or close down factories altogether.

Cassim Mangerah, managing director at British Gas owner Centrica, told the Financial Times that a prolonged or particularly cold winter will send prices higher.

“We haven’t seen a price situation like this before. If you can’t attract supply the only alternative is to cut demand to balance the market,” said Mangerah, adding that “Europe and the UK have enough gas at the moment to satisfy daily demand but we don’t have enough to fill storage."

The UK’s Department for Business, Energy and Industrial Strategy said the country has “highly diverse sources of gas supply” but warned that “exposure to volatile global gas prices underscores the importance of our plan to build a robust domestic renewable energy sector”.

Read more: Millions of Brits turn to TikTok, Instagram and Facebook for financial advice

Meanwhile there has already been a more than 50% increase in energy costs over the last six months amid supply issues and increased inflation, according to UK's energy watchdog Ofgem.

Energy prices for Britons are expected to rocket from October after Ofgem said it would increase its cap on some tariffs by about 12% to 13%, due to the high gas prices.

In August this year, regulator Ofgem announced the energy "price cap" is to go up from £1,138 to £1,277 — the highest increase since it was launched in January 2019.

The cap was intended to protect consumers who do not regularly switch and who are on default tariffs — which tend to be the most expensive.

While the aim was to limit the amount suppliers can charge for a unit of gas or electricity, most energy providers have seen the cap as a "target" as opposed to a limit.

Over the weekend cabinet minister Alok Sharma acknowledged that ministers are considering lifting the energy price cap to help keep firms afloat. 

How long could it last?

The heating season typically starts in October, with wholesale gas prices not forecast to fall significantly for the remainder of the year. 

Energy provides in Norway such as Equinor have said that the drivers of the current bump in prices are expected to remain during autumn and winter. Europe's second largest gas supplier after Russia's Gazprom said it would ramp up gas production where it could to meet demand.

Watch: Europe Faces Skyrocketing Power Prices

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