UK energy companies fear collapse as EU gas prices rise 250%

LONDON – Britain’s energy industry could be heading for a major upheaval, industry insiders have warned, as countries across Europe grapple with an unprecedented crisis in the electricity sector.

Wholesale gas prices have soared across the region, with the UK particularly hard hit.

The first month’s gas price at Dutch hub TTF, a European benchmark for natural gas trading, gained on Monday to trade at 73,150 euros ($ 85.69) per megawatt hour, siting near last week’s record. .

Since January, the contract has increased by more than 250%.

In the UK, energy prices for Monday hit an average of 291.18 euros per megawatt hour, according to energy analysis firm LCP Enact. However, the maximum price for the UK on Monday could reach 1,083.78 euros per megawatt hour, LCP Enact analysis showed.

Robert Buckley, relationship and development manager at Cornwall Insight, told CNBC the crisis was caused by a “cocktail of pretty powerful things” that were beyond the control of suppliers.

These included stiff competition for natural gas deliveries between Europe and Asia, some breakdowns of US production facilities and a tightening of EU carbon market rules, as well as a variety of other factors.

“All vendors will find this very difficult right now,” Buckley said. “Some of them are bigger and more resilient than others. But scale doesn’t automatically equate to resilience.”

He added that “it looks like it will get worse before it gets better” with regard to suppliers leaving the UK electricity and gas market.

“[Suppliers are] caught between this hype of rising wholesale energy prices and the default price cap, and depending on who you think it can go up to £ 200, £ 250 below what would be a cost linked to the market at the moment, so it’s 20% of the total bill, ”he said, referring to a cap on consumer energy prices in Britain.“ That’s – 20% of gross margins. Very little [companies] can take this for a while. “

Meanwhile, Bill Bullen, founder of UK supplier Utilita Energy, has warned that soaring wholesale prices will inevitably lead to more insolvencies in the energy sector.

“We are coming back to an oligopoly at this rate and going backwards,” he said in an email Monday.

According to a Cornwall Insight report, in the fourth quarter of 2010, the six largest energy companies supplied 99.5% of the UK’s domestic energy market. By the second quarter of 2021, that figure had fallen to 69.1%.

“I wonder what this will look like at the end of Q3 2021,” Bullen said.

Start-up Bulb, the country’s sixth-largest supplier, is seeking a bailout, while four smaller competitors recently went out of business, the BBC reported.

Wholesale energy prices have risen 70% since August alone, according to industry body OGUK. “OGUK predicts that UK North Sea production will be halved by 2027 unless new fields are opened, making the UK even more dependent on imports,” Will Webster, manager, told CNBC the energy policy of the organization.

A spokesperson for UK energy regulator Ofgem told CNBC in an emailed statement. “This is a global problem… Ofgem is working closely with the government to manage the wider implications of the global increase in gas prices.”

Governments are keen to take action to prevent the crisis from hitting consumers too hard.

The UK government is considering bailout loans for energy suppliers, according to local media. Business Minister Kwasi Kwarteng met with UK energy companies on Monday in what he said was an effort to “ensure that any failure of energy suppliers causes the least disruption to consumers”.

Seeking to reassure the public on Sunday, Prime Minister Boris Johnson called the price crisis “temporary,” Bloomberg reported.

The UK has limits on how much suppliers can charge consumers for energy, with price caps reviewed by the government every six months.

In a note released on Monday, Eurasia Group warned that the surge in energy prices on the continent was also starting to have political ramifications across the region.

The Spanish government this week issued a decree to cap retail energy prices. Eurasian analysts have speculated that if more EU member states emulate Spain, prioritizing cheap energy over the green transition, the EU’s credibility as a climate leader could be compromised.

“If Madrid’s actions find imitators across the EU this winter, the bloc’s efforts to push for more ambitious climate action in the upcoming global talks in November could suffer,” they said in a note from Monday.