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What to Expect from the Energy Market in 2022

A combination of factors in the 2nd half of 2021 has led to a highly volatile energy market resulting in significant price increases and a number of smaller gas suppliers going bust.

Gas

August saw insufficient gas capacity in the UK which led to a surge in price as, with any product or service, when demand exceeds supply, prices increase. This was down to lower stockpiles of gas than usual, a restricted supply from Russia, factors relating to Brexit and the need to use gas to keep gas-fired power stations running to produce electricity. This led to the country running at less than 100% availability which in turn led to the wholesale price of gas doubling in a very short period of time. This resulted in a number a number of smaller gas suppliers having to purchase gas on the wholesale market at a price considerably higher than the price contractually agreed to sell on to their customers. Without very deep pockets this was a situation that was not sustainable for many suppliers with 26 having gone under at the time of writing (out of a total of about 70 suppliers at the start of 2020).

Electricity

August also saw significant fire damage to one of the two main electricity power lines into the UK from Europe. This resulted in a 50% shortfall in the normal supply of electricity into the UK resulting in a significant price increase as there was a scramble to obtain electricity from other sources. September and October were particularly brutal months for the electricity markets with prices on the wholesale market increasing on an hourly basis on some occasions. The National Grid subsequently announced the first phase of repairs, about 25% of the lost capacity, would not be complete until May 2023, with the remaining 75% of capacity expected to be restored by October that year.

What does this mean for the energy market in 2022 and beyond ?

Following the recent announcements of predicted 50% price hikes in the domestic market we are all in for a rocky ride for the next 1 to 2 years. Business Customers should expect a significant price rise at their next renewal, perhaps somewhere between 50% and 100%, depending on when their previous fixed price contract was taken out, and will simply have to take the hit. IF electricity prices are to fall it is unlikely to be in the next 18 months until the fire damaged power cables are repaired. If your business is due a renewal any time soon the advice would be to take out a short term contract, say 12 or 18 months, to ride out the increases until the middle of 2023 in the hope that that prices will reduce in the middle of that year. Never before has the energy market seen such a sharp rise over a short period of time and the very nature of the market is one of volatility for the foreseeable future.

If you require any advice or assistance with your business energy renewals then we will be happy to help.

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