Price rises that overwhelmed energy suppliers to hit consumers in 2022

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    oaring gas prices consigned a string of energy suppliers to the graveyard in 2021, and will lead to runaway household bills next year as the sector continues to struggle.

    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 something of a perfect storm on global markets.

    Firstly, 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 could have been topped up again over the summer, but once again the weather had other ideas.

    An unusually windless summer meant that wind turbines produced less electricity so gas power plants had to burn more than normal.

    With the energy supply sector still dealing with the exit of more than two dozen companies in a matter of weeks, the need to ensure resilience across the entire market is evident

    Meanwhile, less new supply came onto the market than first thought and demand from China was higher than expected.

    All in all, it meant that 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, but does not change often enough to keep up with this year’s steep rises. The cap is moved twice a year.

    So when gas prices went up energy suppliers were soon put in a difficult situation where it cost them more to buy gas than they were allowed to sell it for.

    It is an unenviable position for any business, and since early September dozens of suppliers have bowed out of the market, with experts predicting further failures.

    The episode has exposed several flaws in how the market works, and will likely lead to permanent changes.

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