Energy prices rocket to new high amid global gas crunch

The cost of power is 11 times above normal before winter has even begun

Energy prices have surged to 11 times above normal levels – a fresh record high – as a crunch in gas supply, low wind speeds and power station closures pile unprecedented pressure on Britain’s grid.

The wholesale day-ahead power price in Britain rocketed to £540 per megawatt hour on Monday – £369 higher than Friday’s price, and more than 1,000pc above the average over the past decade. Gas reached an all-time high of 151p per therm, compared to around 40p per therm a year ago. 

Experts warned that heavy energy users such as factories and steel mills might have to switch to diesel generators to cut their exposure to power prices, while households must also brace for a further increase to their energy bills in coming months.

Adam Lewis, partner at energy trading company Hartree Solutions, said some respite may come on Friday, when wind generation is forecast to pick up from about 1.5GW to 8GW, but added that forecasts are notoriously inaccurate.

The crisis in global energy supplies is harming countries across Europe. Ireland’s single electricity market will block power exports to Britain via the undersea Moyle Interconnector cable for the second time in less than a week on Tuesday to preserve the island’s power supplies. 

Joe Camish, an analyst at Cornwall Insight, said prices have been climbing for months but have now far exceeded what would be expected even during a typical winter, with both gas and power reaching fresh all-time highs.

He said: “Looking ahead, there do not seem to be too many factors that are likely to push down these prices.”

Gas is in short supply globally due to production constraints and rising demand as countries emerge from lockdown. The gas price affects British electricity costs as more than 30pc is generated in gas-fired plants. 

Some nuclear plants are also currently offline; some gas-fired plants have shut down; a power cable connecting Britain to France is temporarily running at reduced capacity; and the calm weather has slashed wind-power generation. Just 8pc of UK power came from wind last week, compared to 20pc across an average year.

National Grid ESO, which balances supply and demand in Britain, is required to make sure it always has spare power capacity – known as margin – to cope with any unplanned outages. 

Analysts expect margins to be relatively tight this week, potentially adding to pressure on prices as generators hold out for a higher price.

Mr Lewis said: “How can we increase that margin? It can’t come from interconnectors [power cables to the Continent] as they are scheduled to maximum. We can’t magic generation from anywhere. 

“The only thing is if we can loosen demand. That is possible – businesses and factories that have their own on-site generation are able to turn that on to reduce demand on the grid.

“Typically they would only do that in a winter period but at these prices I would expect they should be doing so, but it would depend on their route-to-market provider.”

The immediate impact of the price rises will fall on businesses rather than households, many of which are protected by a price cap on their bills.

This is set every six months by Ofgem, the energy regulator, based on average wholesale prices.

This current market turmoil will be reflected when the price cap is reset in April. Consumers face the prospect of a very significant rise unless wholesale costs fall dramatically in coming months.

Dame Clare Moriarty, chief executive of Citizens Advice, said: “It’s deeply concerning that energy prices are continuing to rise, meaning we’re likely to see yet another hike in bills next year. This will dismay customers already bracing themselves for the increase coming next month as the energy price cap rises.” 

Stephen Murray, energy expert at MoneySuperMarket, said: “Unfortunately higher energy prices will be a reality for most of us throughout the winter months.” 

Lisa Barber, home products and services editor at Which? said: “While customers on default tariffs will be protected from further increases to their bill until the next price cap review, those on other variable tariffs may see their bills increase and the number of cheap tariffs on the market will likely continue to disappear, if the wholesale price of energy continues to rise. 

“Switching energy providers is the best way to save on energy bills and customers should consider choosing a fixed tariff to keep their bills stable.” 

The Government has urged people to shop around for cheaper energy deals. It is also extending the Warm Home Discount and plans to trial automatic switching.