The UK is grappling with one of its worst energy crises in recent history. Energy prices have soared – wholesale UK electricity prices are at record levels, while gas prices are at multi-year highs too.
As a result, reports The Telegraph, seven energy suppliers have already ceased trading this year, including MoneyPlus Energy, PFP Energy, Utility Point and People’s Energy.
What is going on, what should you do if your provider goes bust, and how can you insulate yourself from the worst of the coming energy price hikes?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Why are energy prices shooting higher?
We’ve looked at the energy crisis in more detail here but to cut a long story short, in common with just about everything else, energy prices are being squeezed by recovering demand, as lockdowns have eased, and by weaker-than-expected supply.
On the supply side, the weather has been less windy than usual across Europe, which is particularly bad news for the UK, as we’re quite dependent on wind power. Gas prices have shot up, partly because less LNG (liquefied natural gas, which is transported by ship) has been getting to Europe than usual, and partly due to limited pipeline experts from Russia.
Adding to all this (as if we needed any more bad luck), a fire at a National Grid site in Sellindge near Ashford in Kent last week, has shut down a key power cable linking the UK to the continent. As a result of all this, UK wholesale electricity prices have hit unprecedented levels of more than £540 per megawatt hour.
What happens if your energy provider goes bust?
The speed of the surge in prices is taking its toll on small energy providers partly because many of their customers were on fixed-rate energy tariffs. These may have been taken out last year when energy prices were at record lows due to lockdowns.
Now that prices have rocketed, these providers (who often have very little cash cushion to fall back on) have been left buying energy at expensive wholesale prices, but selling it at the cheap prices that were locked in last year. As a result, they lose money and go to the wall.
In fact, energy consultants Baringa believe the number of UK energy companies could slide from more than 40 now to 10 in the next 12 months if wholesale prices stay at these levels, reports the Mail.
The good news is that if your energy supplier goes bust, it shouldn’t have any direct impact on you. The UK’s energy regulator, Ofgem, will switch you to a “supplier of last resort”. Any pre-existing credit you had with the old supplier will also be transferred to the new supplier. If this can’t be done, a special administrator will be appointed by the regulator and the government to ensure continuity of supply.
Do take a meter reading (perhaps taking a picture on your smartphone), as you will need to pass this on to the new supplier. It’s also worth downloading (or printing off) your most recent bills for reference.
What about my bills?
Unfortunately, although your supplier going bust won’t affect you in terms of causing any direct losses, the chances are high that your energy bill will go up – this is what’s causing the wave of collapses, after all.
Ofgem has already had to increase the price cap – which represents the maximum amount that energy companies can charge an average customer on a standard tariff “based on typical usage” – by £139 to £1,277 last month. The new cap is due to be effective from 1 October, but Martin Lewis (founder of MoneySavingExpert.com) notes that it could go up to £1,500 from next April, based on current prices.
So if you are being switched to a new supplier, don’t act until the transfer is over. But after that, shopping around makes sense. Lewis suggests locking in a one or two-year fixed rate now, even if it only yields minimal savings for now, “as the likelihood is over the next year the price cap will rise, so your real savings will be bigger.”
And even if your supplier isn’t at risk, it’s probably worth going onto a comparison site and looking at fixed-rate deals if you are currently on a standard variable rate, notes Lisa Barber of consumer website Which?. While variable rate deals may seem attractive under the current price cap, there is the risk that if the energy crisis continues “anyone who stays on a standard variable tariff could see another substantial price hike after the cap is reassessed early next year.” So it’s worth switching sooner rather than later.
-
8 of the best houses for sale for around £500,000Some of the best houses for sale for around £500,000 – from a 19th-century stone farm cottage in North Yorkshire and a two-bedroom apartment in Edinburgh’s New Town to a converted Methodist chapel in Norfolk
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
Act now to bag NatWest-owned Ulster Bank's 5.2% easy access savings accountUlster Bank is offering savers the chance to earn 5.2% on their cash savings, but you need to act fast as easy access rates are falling. We have all the details
-
Moneybox raises market-leading cash ISA to 5%Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
-
October NS&I Premium Bonds winners - check now to see what you wonNS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
-
Bank of Baroda closes doors to UK retail bankingAfter almost 70 years of operating in the UK, one of India’s largest bank is shutting up shop in the UK retail banking market. We explain everything you need to know if you have savings or a current account with Bank of Baroda
-
How to earn cashback on spendingFrom credit cards and current accounts to cashback websites, there are plenty of ways to earn cashback on the money you spend
-
John Lewis mulls buy now, pay later schemeThe CEO of John Lewis has said the retailer will consider introducing buy now, pay later initiatives for lower-priced items.
-
Paragon raises rate on one-year fixed cash ISA to 5.75%Paragon Bank ups its one-year fixed cash ISA rate to 5.75% - is it enough to top the table?
-
Shawbrook ups rate again on easy access saver products – how does it compare?Shawbrook bank has hiked the rates on its easy access saver and ISA again – but does it compete with other rates on the market?
