Energy prices have been rising rapidly in the last few months. The price increase is having knock on impacts on some sectors such as fertiliser and steel manufacturing, and is causing affordability concerns for domestic customers. 

Gas has led the price rise, but electricity prices have followed as gas is one of the fuels used to generate electricity. The prices are causing widespread concern and knock-on impacts for both domestic and commercial energy consumers. The UK is vulnerable to global price volatility as it is a net importer of natural gas (meaning it imports more than it exports).

The price rise has several causes. An important factor is the return of global gas demand as economies restart after pandemic-related restrictions. Demand has been particularly high in some areas due to cold weather. Supply has not been able to keep up with demand. Regional factors in Europe may have worsened the situation. Parts of Europe receive gas through pipelines from Russia. There is debate about whether the Russian supplier Gazprom could do more to increase supply.

There are some additional factors within the UK that have contributed to the high price. Low levels of wind, outages at nuclear plants, and a fire that has shut down a key electricity interconnector have all contributed to a need for greater use of gas power stations.

Library briefings

The Library briefing paper The energy price crunch (updated 14 January 2022) sets out the background to rising prices. This includes the causes of the global gas price spikes and the UK’s vulnerability to these; the impacts of the price rises on the UK energy sector and industry; implications for the energy price cap; and calls for emergency support and changes to energy policy.

The paper was first published in October 2021. The January 2022 update included the latest data on prices, but did not update the earlier analysis. 

Since the paper’s publication there have been a number of developments in this area, notably:

Timeframe for resolution

  • There has been speculation that the energy crisis could take up to three years to resolve. On 14 January the Guardian reported on warnings from the International Energy Agency (IEA) that “the global surge in demand for energy could spark another three years of market volatility and record power plant pollution unless countries make major changes to how they generate electricity”. The chief executive of Centrica has suggested that the crisis could last between 18 months and two years.

Causes of energy market volatility

  • The IEA has attributed the causes of energy market volatility in Europe to “exceptionally rapid global economic rebound, outages and maintenance of key gas infrastructure, and a lack of sufficient supply from Russia”. In a blog on 13 January, the IEA’s chief executive said:

“We see strong elements of ‘artificial tightness’ in European gas markets, which appears to be due to the behaviour of Russia’s state-controlled gas supplier [Gazprom]. Unlike other pipeline suppliers – such as Algeria, Azerbaijan and Norway – Russia has reduced its exports to Europe by 25% in the fourth quarter of 2021 compared with the same period in 2020 – and by 22% compared with its 2019 levels […]

Against today’s low baseline, we estimate that Russia could increase deliveries to Europe by at least one-third, or over 3bn cubic metres per month. This equates to almost 10% of the European Union’s average monthly gas consumption – and would be the equivalent of a new LNG tanker delivering a full cargo of natural gas to Europe every day. Together with the current high level of LNG inflow, this would provide significant relief to European gas markets.”

Collapse of energy market suppliers

  • 26 energy suppliers collapsed in Great Britain in 2021. Bulb Energy, the seventh largest energy supplier, collapsed on 22 November. The BBC reported that Ofgem was unable to find another supplier to take on the firm’s 1.7 million customers under the ‘Supplier of Last Resort Process’, and instead Bulb was put into “special administration” under powers never previously used. On 13 January the Financial Times reported that Ovo Energy, GB’s third-largest supplier, announced it will cut a quarter of its workforce (1,700 jobs) as a cost cutting measure.

Implications of energy price cap rise

  • Ofgem is expected to announce in early February that the Energy Price Cap will rise again on 1 April 2022. On 6 January the Financial Times reported on speculation that bills could rise by more than £700 as a result. Former group chief executive of Centrica, Iain Conn, has said the price cap had made it more difficult for energy companies to manage risk and that the cap should be “phased out”, whilst Scottish Power’s chief executive has said that it should be restructured. On 14 January the Telegraph [accessed via Nexis News] wrote that 25 charities have warned the energy crisis could increase the number of households in fuel poverty from four to six million.

Proposed solutions

Further information

Other Library briefings with information relevant to this topic include: 

  • Energy bills and tariff caps (6 August 2021): This paper sets out background information on the energy market, the component parts of an energy bill, and the establishment of the tariff cap. It covers why the cap was developed, how it is set, the most recent cap levels, and comment on the cap. 
  • Fuel poverty (8 July 2021): This paper sets out the various policies on fuel poverty across each of the devolved nations (fuel poverty is a devolved policy area). This includes the definitions of fuel poverty, statistics on levels of fuel poverty, strategies to address fuel poverty, and policies available to support those who are in fuel poverty.
  • Energy Policy: An overview (22 December 2020): This paper sets out background information on UK energy policy, including the three main aims of affordability, security, and decarbonisation. The briefing also contains links to other Library publications covering various aspects of energy.

The following publications provide advice on the support available to help constituents to manage their energy costs:

  • Help with Energy Bills (27 March 2019): This paper provides information on the policy support is available for constituents who are struggling with their energy bills.
  • Help with heating and energy efficiency (1 October 2019): This casework article describes support schemes available for energy efficiency and domestic generation of heat and power which constituents may be able to access, and links to further advice.

Press 

The rise in energy bills has been widely reported in the press. Some articles include:

Parliamentary material

Debates

Household Energy Bills: VAT

11 Jan 2022 | Parliamentary proceedings | 706 cc451-504

Gas Prices and Energy Suppliers

23 Sep 2021 | Parliamentary proceedings | 701 cc415-424

Fuel Poverty

08 Jul 2021 | Parliamentary proceedings | 698 cc1125-1146

PQs

Energy: Prices

Asked by: Hanna, Claire | Party: Social Democratic and Labour Party

To ask the Secretary of State for Business, Energy and Industrial Strategy, what additional steps his Department has taken to help support households most affected by the rise in the cost of energy prices.

Answering member: Greg Hands | Party: Conservative Party | Department: Department for Business, Energy and Industrial Strategy

The Government is committed to protecting customers, especially the most vulnerable. The Energy Price Cap will continue to protect consumers, ensuring they pay a fair price for their energy this winter. Low income and fuel poor households will continue to be supported with their energy bills through the Warm Home Discount, which provides eligible households with a £140 discount. Winter Fuel Payments and Cold Weather Payments will also ensure that the most vulnerable are better able to heat their homes over the colder months.

Additionally, the Government announced an extra £500 million for local authorities through the new Household Support Fund to help millions with their household bills.

20 Dec 2021 | Written questions | Answered | House of Commons | 93076

Fuel Poverty

Asked by: Whitley, Mick | Party: Labour Party

To ask the Secretary of State for Work and Pensions, what assessment she has made of the implications for her policies of Age UK’s recommendation that in order to tackle fuel poverty, especially amongst older people (a) the Household Support Fund should be doubled and (b) persons eligible for the Cold Weather Payment should be provided with a £50 one-off payment in winter 2021-22.

Answering member: Guy Opperman | Party: Conservative Party | Department: Department for Work and Pensions

The Government has committed to keeping the Winter Fuel Payment, which helps older people with the cost of heating their homes in the winter. The payment gives reassurance to pensioners that Government assistance is available and that they can keep warm during the colder months. Over 11 million pensioners benefit from Winter Fuel Payments at an annual cost of £2bn which is a significant contribution to winter fuel bills. We will continue to pay £200 for households with somebody who has reached State Pension age and is under age 80; or £300 for households with somebody aged 80 and over.

The Government has provided £500 million to help vulnerable households across the country with essentials this winter. The Household Support Fund will provide £421 million to help vulnerable people in England with the cost of food, utilities and wider essentials. The Barnett Formula will apply in the usual way, with the devolved administrations receiving almost £80 million (£41m for the Scottish Government, £25m for the Welsh Government and £14m for the NI Executive), for a total of £500 million.

Local Authorities in England have discretion to design their own bespoke local schemes, within the overall parameters of the Household Support Fund, with help primarily focused on food and utility bills. Up to 50% of the fund is available for councils to use on households without children. Local Authorities will use their resources to identify vulnerable households who are in most need in their area and can apply their own discretion to eligibility and the size of the award. This funding covers the period 06 October 2021 to 31 March 2022 inclusive.

The Cold Weather Payment scheme helps vulnerable people in receipt of certain income-related benefits to meet the additional costs of heating for every week of severe cold weather, between 01 November and 31 March each year. A payment of £25 is made when the average temperature has been recorded as, or is forecast to be, 0 degrees C or below over seven consecutive days at the weather station linked to an eligible person’s postcode. It is paid automatically within 14 working days of a trigger to ensure claimants receive payments at the time of need. Between 01 November 2020 and 31 March 2021 the Government made £98.8 million in payments to those in need.

13 Dec 2021 | Written questions | Answered | House of Commons | 89676

Energy: Prices

Asked by: Lewell-Buck, Mrs Emma | Party: Labour Party

To ask the Secretary of State for Business, Energy and Industrial Strategy, when the Government plans to implement proposals for households to switch automatically onto the cheapest energy tariffs.

Answering member: Greg Hands | Party: Conservative Party | Department: Department for Business, Energy and Industrial Strategy

The Government is committed to a competitive retail energy market, which delivers choice and value for money for customers. When we came to office in 2010 the number of suppliers had fallen to just six, which meant that market competition was seen to be insufficient.

We want to ensure the market can facilitate competition and helping households on more expensive tariffs make energy savings. We will undertake extensive qualitative research and testing to understand how consumers might experience and respond to the intervention.

18 Nov 2021 | Written questions | Answered | House of Commons | 75000

Energy Supply: Low Incomes

Asked by: Lord Pendry | Party: Labour Party

To ask Her Majesty’s Government what steps they are taking to ensure that families with members (1) in low-paid jobs, or (2) on zero-hour contracts, can pay their energy bills and do not fall into fuel poverty.

Answering member: Lord Callanan | Party: Conservative Party | Department: Department for Business, Energy and Industrial Strategy

The energy price cap will save 15 million households up to £100 on their energy bills this winter. The Government supports low-income and fuel poor households with their energy bills through the Warm Home Discount and Cold Weather Payments, where eligible.

The Warm Home Discount scheme currently provides over 2 million low-income and vulnerable households with a £140 rebate off their winter energy bill. Warm Home Discount funding for 2021/22 year is worth £354 million.

In addition, the Government has announced an extra £500 million for local authorities through the new Household Support Fund to provide help to millions of the most in need.

The independent regulator, Ofgem has an objective to protect vulnerable consumers. Its Consumer Vulnerability Strategy 2025 includes activities to improve identification of vulnerability and supporting those struggling with their energy bills. Further details of Ofgem’s Consumer Vulnerability Strategy 2025 are available on Ofgem’s website.

08 Nov 2021 | Written questions | Answered | House of Lords | HL3392

Natural Gas: Prices

Asked by: Hayes, Helen | Party: Labour Party

To ask the Secretary of State for Business, Energy and Industrial Strategy, what assessment he has made of the potential effect of the volatility in gas prices on the UK’s (a) energy security and (b) transition to renewable resources.

Answering member: Greg Hands | Party: Conservative Party | Department: Department for Business, Energy and Industrial Strategy

Higher wholesale gas prices have been seen globally in 2021 due to multiple international factors in supply and demand. The UK has highly diverse sources of gas supply and a diverse electricity mix, which ensures households, businesses, and heavy industry get the energy they need. National Grid Gas’s Winter Outlook notes the supply margin has increased compared to last winter and is sufficient in all of their modelled scenarios. Similarly, National Grid Electricity System Operator’s 2021 Winter Outlook Report confirms that there will be sufficient capacity available for the coming winter.

The Government has published a comprehensive Net Zero Strategy, which outlines measures to transition to a green and sustainable future, helping businesses and consumers to move to clean power, so that households and businesses will be much better protected from energy price spikes caused by volatile international fuel markets.

03 Nov 2021 | Written questions | Answered | House of Commons | 63795

Energy: Prices

Asked by: Holden, Mr Richard | Party: Conservative Party

To ask the Secretary of State for Business, Energy and Industrial Strategy, what assessment he has made of the potential merits of taking measures to control energy costs for people living in rural areas who rely on (a) oil, (b) LPG and (c) solid fuel.

Answering member: Greg Hands | Party: Conservative Party | Department: Department for Business, Energy and Industrial Strategy

If residents are off the gas grid, but on a default tariff for their electricity only supply they will still be protected by the Energy Price Cap. Providing they are eligible, they will be able to access Warm Home Discount.

The Government believes it is essential that consumers get a fair deal.  There are open markets for the supply of heating oil and LPG in the UK as we believe this provides the best long-term guarantee of competitive prices. These markets are subject to UK competition law to ensure they operate efficiently for the consumer.

Changes in the price of crude oil are the main drivers for the price of heating oil although other factors including more local supply and demand for the refined products can have an impact on prices. LPG used in the UK is produced primarily as a by-product from the refining of crude oil. The LPG price is therefore also influenced by the price of crude oil.

We consider energy efficiency upgrades to be the best way to tackle fuel poverty in the long term. Energy efficiency upgrades will contribute to reduced energy bills and a warmer, safer living environment.

We are supporting low income and vulnerable households in rural areas through the Home Upgrade Grant, which will support low-income households by upgrading the most energy inefficient off gas grid homes in England. On 19 October we announced additional funding of £950m for the Home Upgrade Grant.

Further, through the Energy Company Obligation, an obligation placed on larger energy suppliers, which requires them to reduce home heating costs by installing energy efficiency and heating measures to people’s homes in England, Scotland and Wales. We recently consulted on the successor scheme from 2022 and proposed incentives for delivery in rural areas where additional grant funding is not available.

22 Oct 2021 | Written questions | Answered | House of Commons | 57434

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