UK Energy Companies Worried as Europe’s Gas Crisis causes Prices to Skyrocket

As countries across Europe cope with an unprecedented power crisis, industry insiders have warned that Britain’s energy business could be in for a big shake-up. 

Wholesale gas prices have risen across the area, with the United Kingdom taking the brunt of the increase. 

On Monday, the front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, rose to 73.150 euros ($85.69) per megawatt-hour, close to the previous week’s record high. The contract has increased by more than 250 % since January.  

According to energy monitoring firm LCP Enact, day-ahead energy prices in the United Kingdom hit an average of 291.18 euros per megawatt-hour on Monday. According to LCP Enact’s estimate, the highest price for the United Kingdom on Monday may be as high as 1,083.78 euros per megawatt-hour. 

The issue was created by a cocktail of pretty strong stuff that was beyond the control of suppliers. Strong competition for natural gas deliveries between Europe and Asia, occasional outages at US production facilities, and tightening of EU carbon market rules, among other things, were among them. In terms of providers quitting the British electricity and gas markets, it appears that things will get worse before they get better. 

At this rate, rising wholesale prices will eventually lead to additional insolvencies in the energy sector, resulting in an oligopoly. 

The six main energy companies in the United Kingdom supplied 99.5 % energy market in the fourth quarter of 2010. By the second quarter of 2021, the percentage had dropped to 69.1%. Start-up Bulb, the country’s sixth-largest supplier, is seeking a bailout, while four smaller rivals have just gone out of business. Wholesale energy prices have risen by 70% in only the month of August. Unless new fields are built, UK North Sea output would approximately halve by 2027, rendering the UK increasingly more reliant on imports. 

Governments are eager to act to prevent the crisis from wreaking havoc on consumers. The British government is mulling bailout loans for energy suppliers. On Monday, Business Minister Kwasi Kwarteng met with British energy businesses in an effort to ensure that any energy supply breakdowns create an as little interruption to consumers as possible. 

Prime Minister Boris Johnson sought to reassure the people on Sunday, calling the pricing situation “temporary.” 

Energy suppliers in the United Kingdom are limited in how much they can charge consumers, with price ceilings reviewed by the government every six months. Soaring energy prices on the Continent were beginning to have political consequences across the region. 

This Thursday, Spain’s government issued a decree capping retail energy rates. The EU’s credibility as a climate leader could be harmed if more EU member states follow Spain’s lead and prioritize cheap energy over the green transition.