City Research Online

Abstract

Already battling with the turmoil of Covid-19 and the complex challenges posed by Brexit, the UK economy is facing a fresh crisis: extraordinary spikes in wholesale electricity and gas prices.

Gas price hikes have led to gas in Europe trading at nearly three times the price of crude, as the consumer energy market faces the prospect of surging prices. Domestic energy bills are predicted to rise by at least 30 percent by early next year. Households whose deals on fixed-price energy have recently ended have already faced added costs. The UK is on track to witness the highest increase of domestic energy bills since records began in 2009.

The implications for energy retail companies are severe. A total of ten energy companies have folded due to rocketing natural gas prices since the start of August, meaning that 1.7 million customers have lost their supplier. There are nearly 50 energy suppliers in the UK, but predictions for their longevity are in doubt. With the energy market already dominated by a handful of larger companies, some executives predict that the sector could go back to as few as four companies.

Under the current approach to energy supply, the gas market remains important for industry, power generation, and domestic supply, with more than 22 million households connected to the gas grid.

Prime Minister Boris Johnson claims that the gas supply shortage is a knock-on effect as the economy begins to recover from the pandemic. The Department for Business, Energy and Industrial Strategy points to a series of additional factors, notably the winter surge in household demand, rescheduled maintenance projects from the previous year, and disrupted shipping of natural gas following an uptick in demand in Asia for Liquified Natural Gas.

The problems with the energy market, however, did not start with this crisis. From the lack of gas storage capacity leaving the UK’s gas supply more vulnerable to volatile global markets, to gas bills rising by 50% since 1996, and the average profit margins of big energy suppliers growing from 1 percent to 4 percent between 2009 and 2017, it is clear that systemic problems are designed into the current energy strategy. The current approach to the ownership and operations of energy companies points to deeper, systemic failures of the privatised energy market and its implications on energy security and supply.

Publication Type:	Report
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HJ Public Finance
Departments:	School of Policy & Global Affairs > International Politics

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