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Before the price of power shot up in recent times, you probably didn’t spend that much time wondering about how your gas and electricity was produced.
Why would you? All you need to do is use it, and then pay for it somewhere down the line.
But the current cost of living crisis has everyday people mulling over just why our utility bills are shooting up.
The major source for the UK’s supply of gas has, for a long time, been the United Kingdom Continental Shelf (UKCS) or the North Sea.
However, these reserves are running low and the cost of extraction is becoming less viable. Because of this, we are becoming increasingly reliant on gas from Norway and the UK Interconnector – a direct connection to mainland Europe – and liquefied natural gas (LNG) shipments.
The price of gas is driven by the cost of extraction and transportation – and that’s before the administration and sale costs, plus supplier margins, are added on.
So, what is causing the soaring gas prices affecting everyone in the UK?
Firstly, it’s not simply a matter of supply and demand. We don’t currently have enough gas reserves, as levels with Ofgem (the energy regulator) calling current levels ‘historically low’.
We have less than nine terawatt-hours of gas (the unit to express energy production and consumption), a paltry amount compared to our European cousins, and a drop in the ocean when you consider that we consume more than 500 TWh of gas each year.
Sanctions brought in in the wake of Russia’s invasion of Ukraine mean other countries are looking to reduce their reliance on Russia’s supply. Demand for gas remains high and avoiding gas from Russia – the country supplies just 5% of the UK’s gas but two-fifths of EU countries – raised the cost of the country’s production.
Climate change is another factor. The UK used so much over the last 12 months due to a longer, colder winter than normal. The dip in temperatures (we have recently experienced the coldest April in the UK in a century) served only to increase the rising demand for gas.
When one considers these factors, plus unforeseen problems with power plants, as well as renewable sources like wind and solar farms producing less power than expected, and increased demand in South America and Asia, that’s quite an impact to have, both domestically and for business premises.
And how about the cost of electricity?
Yes, gas prices are on the rise, but electric bills are spiralling. In wholesale terms, the price of electricity has risen by a staggering 268% in a year.
The UK has plants that use gas to generate electricity – more than a third of our electricity, in fact – and a gas shortage has a knock-on effect. In short, a lack of gas supplies means there’s also a lack of electric, which ultimately leads to the cost of both rising.
While there has been action taken by industry regulators, any repercussions for energy suppliers may have little or no effect for small-to-medium enterprises (SMEs) who are struggling to stay afloat, given the current state of energy pricing.
Gas prices – what are the other contributing factors?
In summary, the primary driving factors behind your SME’s energy bills are that:
We don’t have enough gas to meet the demand – we have a fraction of the reserves stored by the likes of Italy, Germany or France.
Climate change – the long, cold winter endured by Europe and Asia meant a huge increase in demand for gas.
The Russian invasion of Ukraine – Russia has had sanctions imposed upon it and, although countries are looking to reduce the gas they are importing from the country, that has served to raise prices.
Insufficient renewable fuel generation – the UK produced less wind and solar-generated power than was expected last year. Wind farms regularly operated at around a tenth of their full capability and there was the least windy summer in 60 years.
Global demand – the UK wasn’t able to buy the liquefied natural gas they normally would. China, Brazil and Argentina all imported far more LNG to meet their own demands.
Problems with suppliers – it isn’t just one standard supplier that is having problems meeting the demand, it is a similar story across Europe.
So, it’s clear that the cost of our utilities, both for customer and business use, is rising out of control.
You’re probably thinking how glad you are that you enlisted the help of an energy broker to find your business the best deal available.
They are, after all, the experts in their field. They should be able to find the best prices, and they take the hassle out of switching or signing up your business for you – and may even have access to deals that you wouldn’t have if you’d gone it alone.
Don’t forget, energy companies are happy to involve these third parties too, especially if they can boost their customer base for them.
The energy supplier is happy, you’re happy and the broker is happy. All’s well with the world, isn’t it?
The only issue remaining is whether the broker has mis-sold your deal to you.
The vast majority of energy brokers (and indeed brokers as a whole) carry out their work diligently and with transparency. This includes how – and how much – they get paid for trawling the market on your behalf.
They may have been working according to the incentives provided by energy companies. This often means commission in the form of extra charges added to the cost of your bills. A breakdown of all hidden charges and costs needs to be made transparent to the customer.
It’s thought that a tenth of small-to-medium enterprises (SMEs) overpay for utilities at their business premises due to hidden fees and undisclosed commission. Many have been locked into unfavourable long-term contracts that offer the broker, rather than their customer, the best deal with the higher unit rate applied to their usage and the customer unable to do a thing about it.
It means an unfair relationship between broker and customer is created, and you – the customer – are at the wrong end of the deal. A mis-sold business energy deal means you may be paying more than you should be, or at least more than you were informed you’d be charged.
If so, you need to take action.
We understand the thought of tackling a compensation claim alone is daunting and you don’t know how to go about it. That’s where we come in.
Baring Law’s legal team have the expertise to analyse the details of your business energy contract and find out if you have a case to fight for compensation. We’ll do it on a Conditional Fee Agreement (also known as a no-win no-fee) basis so you can make your claim safe in the knowledge that there’s no financial risk to you. You only pay for our services in the event of your claim being successful.
You have nothing to lose and everything to gain.
What’s more, once you have supplied us with the necessary documents you can sit back and let us handle your case, safe in the knowledge that we have the best lawyers available and we will always act in your best interests and keep you informed as the case progresses.
Consult one of our advisers to see what we can do to get your business the money you should never have been paying out in the first place. Call us 0n 0161 200 9960 or simply hit the icon at the bottom-right of the page if you prefer to speak to by using the webchat facility.
At Barings Law, your legal concerns are our top priority. Whether you need guidance on a complex legal matter or have questions about our services, our team is ready to assist you.
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