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Q&A: Why are energy firms having to pay more?

Q&A: Why are energy firms having to pay more, how will it affect people’s bills and what can be done if a fixed deal ends?

Why are energy firms having to pay more?

Demand for wholesale gas has soared as economies recover from the pandemic, while supply has been squeezed, pushing up prices. 

The UK imports much of its gas from the EU, Norway and Russia. We have become more reliant on gas after a series of disruptions. 

Last month a fire in Kent knocked out a cable bringing electricity from the continent. Wind levels have also been lower than usual.

Britain is incredibly reliant upon imported gas from Norway, the EU and Russia 

How will it affect my bills?

With energy suppliers paying record prices for gas, firms are passing on the extra cost. 

Many have pulled cheap fixed deals and are hiking existing customers’ monthly direct debits. 

Those on a fixed deal should not see bills increase unless they start using more energy or their supplier goes bust. 

But once their tariff ends they will be moved on to a far more expensive standard variable tariff. 

Prices are capped by Ofgem at £1,277 a year for the average household, but this is likely to increase significantly in April.

What should I do if my fixed deal ends?

Experts are urging households not to panic and lock themselves into costly fixed deals. 

Ordinarily, standard variable tariffs are among the priciest on the market and experts would urge customers to switch to a new fixed deal. 

But today some fixed deals are £700 more expensive than the default deal offered by suppliers. So the best option may be to sit tight.

Natural gas prices in the UK have shot up dramatically since January from 50p a unit to more than £3.50

What should I do if my supplier goes bust?

Twelve energy companies have already ceased trading this year and dozens more could follow. 

Smaller suppliers are most at risk as they do not buy their energy as far in advance, so have been hit harder by rising costs. 

If a supplier does goes bust, customers will not lose power. Ofgem will appoint a new supplier to take over the accounts and customers will be moved on to its standard variable tariff. 

Households affected should take meter readings ready for their new supplier. 

Any credit balances will be refunded, but this could take months.

How will businesses be hit?

UK businesses which need gas to heat their offices or manufacture goods face hefty bill hikes. 

Steel, fertiliser and chemical plants, which rely on high energy consumption, have warned they may not be able to operate as normal this winter without emergency help. 

Businesses hit with higher costs could be forced to pass these on to consumers.

What is being done?

The price cap will protect families for now. But experts believe it could be raised significantly in April as it is preventing suppliers from making enough to cover costs. 

Joe Malinowski, of comparison site TheEnergyShop, warned an increase of £800 cannot be ruled out. 

The Department for Business, Energy and Industrial Strategy said Business Secretary Kwasi Kwarteng is in ‘regular contact with Ofgem’ and with suppliers ‘to understand the challenges they face’.

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