An unprecedented upturn in the price of gas is sending shockwaves through the UK energy market, forcing a number of energy suppliers out of business, threatening massive increases to consumers’ bills and even provoking government bailouts of carbon-dioxide producers integral to the food supply chain.
UNISON’s national officer for energy Matt Lay explains how we got to this point and what it means for our members.
He paints a dark picture of an entire section of the country’s infrastructure which has been balanced on a knife edge for years and warns that, without immediate government action, people will go cold this winter.
So Matt, what is happening?
“There has been a significant global increase in the wholesale price of gas. It’s down to a lot of reasons but mainly, demand is greater than supply. The UK is a big consumer of gas, not just for home consumption, but also in terms of electricity production, around half of the UK’s electricity supply comes from gas fired electricity plants.
“So, this isn’t just about the price of consumer’s gas or central heating, it’s going to affect their electricity as well, we’re talking about hundreds of pounds a year increase.”
Why is it coming into focus now?
“To put it very simply, energy suppliers buy electricity and gas from the wholesale market and sell it on to consumers. This has been coming for a few weeks now, prices are continuing to rise and it’s likely that they’ll stay high. There is a finite amount of gas in the system, and if there’s more demand for it, it will go to the highest bidder.
“The issue has come into particular focus this week because some smaller energy suppliers are starting to go out of business. They can no longer afford to supply customers at the price which they agreed because they would have to buy the electricity and gas at a substantially higher price.”
How did we end up here?
“Over the last decades, the government and energy regulator Ofgem have really encouraged the fragmentation of the market, believing it will bring down prices for consumers.
“The smaller companies, who popped up to compete with the larger, legacy suppliers, companies like British Gas or Eon, have been selling energy at tiny margins or even at a loss and they tend to buy energy at the same time that they sell it.
“This has put a lot of pressure on the legacy suppliers who have the biggest fixed costs, mainly staffing, and tend to buy energy well in advance which insulates them from price spikes.
“The smaller suppliers could manage when gas prices were falling or, at least, not keeping up with inflation, but now their business model has become completely unsustainable, and they are rapidly going bust.
“A lot of people in the industry think we’re going to go from 50 suppliers in the market this year to somewhere nearer a dozen next year, and the legacy suppliers are the only ones who are going to be able to take on customers from those companies going out of business.
“Nevertheless, even the legacy suppliers will struggle in this market and the bill payer is going to be the one picking up the tab. They might not see it yet, but they will in the next round of tariffs.”
How will it affect our members?
“Firstly, for those who work in the industry, membership is primarily in the legacy suppliers, there is going to be considerable disruption and uncertainty and it’s not going away any time soon.
“Secondly, all our members are consumers. They’re going to see their energy bills rocket and, with the increase to national insurance and a lack of sufficient pay rises across the public sector, this is going to hit the poorest among them very hard.
“Finally, it’s going to have an effect on public services. For example, the NHS is an enormous energy consumer, and they won’t have budgeted for this type of increase, it’s going to squeeze their budgets hard causing a knock-on impact on our membership.”
Could it have been prevented?
“Yes, it could have been prevented. UNISON has been talking for a long time about focussing on energy demand, rather than its price.
“In the context of net-zero targets, we think you can kill two birds with one stone. Take the focus off the price and put it on reducing a household’s consumption of energy, therefore reducing the size of bills.
“We argue for a national programme of energy efficiency measures, a door-to-door approach, get every home to an energy performance rating C at least and supporting every consumer reduce their energy consumption without compromising comfort levels.
“By doing that we cut their bills, improve living conditions, systematically eradicate fuel poverty and avoid many of the health issues caused by poor housing. So no, we don’t want people to just put another jumper on.”
What happens now?
“Right now, the government must intervene to support consumers, particularly those on low incomes, because they won’t be able to afford this. We’re talking about a lot of people going cold this winter.
“In terms of other support, it’s important that consumers also know the resources out there. UNISON has its own charity – There For You – but it is worth knowing that the big energy companies generally do have their own help available as well.
“The critical thing is, if somebody is struggling with their energy bills, get in touch with one of these at the earliest possibility.”
Members experiencing financial and emotional difficulties can contact our welfare charity, There for You, which provides a confidential advice and support service for members and their dependants.