Winter is around the corner, spelling darker days, colder weather and higher gas and electricity bills. Alarms are being raised over the uncertainties raised by the coming winter, because recent history has shown all too clearly what can go wrong. To remind ourselves, here is what happened just two years ago when energy prices spiked to unprecedented highs:
An explosion and subsequent fire at a key gas storage facility in the North Sea rendered the facility inoperable for months, and restricted supplies to the UK
- Gas imports from Europe via a sole pipeline operated from the Netherlands had been highly unreliable, highlighting the need for more import capacity
- A mild winter should have meant lower energy consumption, but considerable extremes of cold put extreme pressures on the country's energy infrastructure, driving up prices
(of number a for halted were pipeline key through deliveries when Europe across shockwaves sent payments gas over Ukraine and Russia between dispute A)
Gas prices spiked and we all know what happened next just by looking at our bills today and because 40% of our electricity is generated with gas, this spike ultimately translated into higher electricity prices as well. Since then, the wholesale cost of gas and electricity has eased and the country has more capacity to import energy, yet energy prices remain at an all time high.
A recent consultation hosted by energy markets regulator Ofgem, which included experts from energy producers, pipeline operators, and even the Met Office, has highlighted that despite all of the work that has been done, considerable risks remain for the coming winter. Here are the main issues that could determine the cost of your gas and electricity this coming winter:
PRICE SPECULATION
: The wholesale prices for gas has again fluctuated considerably this year, and most notably in September, when forward gas prices nearly tripled in a matter of days for no substantive reason. This kind of volatility makes it riskier to trade in gas and electricity. Risk is exacerbated when suppliers stop buying gas and electricity at expensive long term forward prices, and take a punt on the short-term spot market instead in order to maintain their competitiveness.
This trading tactic has caught suppliers out in the past and caused at least one start-up energy supplier ZEST4 to fail in early 2006, when it could no longer afford to buy the energy it needed to supply its customers.
SUPPLY SHOCKS
: Despite the completion of two major new gas pipelines into the UK in 2006, gas prices have not stabilised as was hoped, and there are calls for more transparency in the way these gas pipelines are operated. Energy consumers face the risk that a temporary failure of one of the pipelines may set off a spike in gas prices in general as has happened when fog in the North Sea prevented the delivery of gas from Norwegian fields on a number of occasions this summer.
Another dispute between gas-rich Russia with one of the countries used to transit gas for Europe this winter would also again contribute to a substantial supply crisis, meaning higher prices for UK consumers.
DEMAND SPIKES:
While the Met weather office is still betting on winter temperatures to be above the 1977-2000 average, predictions are that last year's extremely mild winter will not be repeated. However, even a repeat of the 2005/06 pattern of mild weather punctuated by sudden drops in temperature could put stress on UK energy supplies with price increases for consumers the result.
REGULATION:
The effect of tighter European regulation, particularly as it relates to the carbon dioxide emissions of coal-fired electricity plants, could have a severe impact on electricity prices. More energy could end up being generated from (more expensive) gas come January 1
st
, 2008, when new regulations come into force and this additional cost would find its way onto consumer bills.
The conclusion is clear:
UK
remains at risk from higher energy prices and
the market currently points to gas and electricity price increases this winter
.
What should you do? You should make sure that you are getting the best deal for your gas and electricity. Luckily, one supplier has recently launched an innovative
Price Fix 2008
discount gas and electricity tariff which guarantees no price increases until November 30
th
, 2008 a deal well worth considering given that the unit rates for this tariff compare with other cheap offers that do not include a price guarantee. Run a comparison quote to see which deal works out best for you. Switching energy suppliers takes 10 minutes, and could save you up to £435, depending on how much energy you use and where you live
