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Wednesday, October 27, 2021

Gas prices, blackout risk and switching: your questions answered

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Will we have blackouts?

Not unless things take a significant turn for the worse. Up until now this has been a price, rather than a supply crisis – caused by the huge leap in the wholesale price of gas, which in turn has led to the collapse of nine domestic suppliers. On Thursday, the energy and business secretary, Kwasi Kwarteng, told the Energy UK conference that the government was “confident” that the UK has enough supplies to meet demand this winter.

That said, the UK has very little gas reserves in comparison to our European neighbours, and an electricity infrastructure not blessed with excess capacity. If there were a major outage in nuclear generation, the wind stopped blowing again as happened last month, and the French went ahead with threats to cut electricity supplies over the fishing row, it is not inconceivable that blackouts could happen.

National Grid’s electricity system operator believes supply will meet demand but has cut its forecast of buffer supply. Its officials are also warning of high costs for getting power generators to fire up at short notice to help balance the grid.

What will happen to prices this winter?

Almost every household that did not have the foresight to sign up to a long-term, fixed-price tariff with one of the big energy suppliers is likely to face higher bills than they are used to this winter.

The regulator Ofgem caps the maximum gas and electricity prices that suppliers can charge, but households on direct debit are now paying £1,277 a year assuming average usage after a 12% hike on 1 October.

The cap will stop providers increasing their variable tariffs, so if you are on one now, your unit price will not increase over the winter. But if you are coming to the end of a fixed-rate tariff – where the unit price is guaranteed for a set period of time – or you are with a provider that goes bust, you will face a price jump when you move off the deal.

Will it get worse next year?

In the short term it is likely to. The price cap is based on wholesale gas prices, and if they continue at their current level, analysts have predicted that Ofgem will increase it by another 30% to the equivalent of £1,660 a year. A year ago households on the cheapest deals were paying half that – just £817 a year.

The cap will be reviewed in February and come into effect in April, so bills would go up that month.

Is it worth switching?

No, because there aren’t any tariffs currently being offered at less than the cap. Even the switching sites are warning people off: Comparethemarket, for example, has a pop-up note saying, “Due to the unprecedented rise in wholesale energy prices and the price cap on variable tariffs, switching to a new fixed tariff may cost you more at present.”

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When the Guardian searched for a fixed price “deal” this week, the cheapest was £1,680 a year for two years – the same amount as the cap is expected to rise to next April.

Joe Malinowski, founder of price comparison site The Energy Shop, said the cheapest tariff that he could find that was taking new customers was a two-year deal from So Energy at £1,855 a year for average usage. That’s £1,000 more than the best-buy deal this time last year.

How else will this affect me?

Companies are also facing higher energy prices and could pass on the costs to consumers. Retailers and manufacturers will both be affected, and those with the tightest profit margins could be forced to quickly put up prices.

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