Energy prices set to soar again next year after a ‘perfect storm’

Energy suppliers had been paying 54p per therm of gas at the beginning of the year. By September, that had reached more than £3 and peaked even further to £4.50 just before Christmas.

It was an unprecedented spike caused by a “perfect storm” on global markets.

Last winter was unusually cold in the northern hemisphere. Gas is still a key fuel in heating homes and businesses in much of the world, so the cold temperatures led to a spike in demand, and countries started eating into their gas reserves. These reserves would have normally been topped up again over the summer.

However, an unusually windless summer meant that wind turbines produced less electricity so gas power plants had to burn more than normal. Demand from China was also higher than expected.

Gas was in short supply, and as a result prices spiked. For energy suppliers in the UK, this spelled disaster.

Since 2019 they have been limited in what they can charge customers because of regulator Ofgem’s price cap.

The cap takes into account the price of energy and is moved twice a year.

When gas prices went up energy suppliers were soon put in a tough position, because it cost them more to buy gas than they were allowed to sell it for.

Since early September dozens of suppliers have bowed out of the market, with experts predicting further failures.

Emma Pinchbeck, chief executive of trade body Energy UK, has described the situation as a “nationwide crisis”. She told BBC Radio 4’s Today programme: “The prices are now so high that this affects the whole economy.”

Energy UK is calling on the Treasury to step in and take action to help reduce bills.

Ms Pinchbeck said the Government could shave £90 off each customer’s bill by cutting taxes or VAT and a further £190 by bringing forward proposals to remove policy costs, particularly on electricity.