With a number of energy suppliers collapsing in recent weeks, and reports today of two more companies ceasing trading, Professor David Elmes from Warwick Business School and Professor Mike Waterson from the Department of Economics comment on some of the factors that have led to this situation.

Professor David Elmes of Warwick Business School said: “Today’s news takes the number of customers whose energy company has failed in recent months to 1.5 million and that’s likely to rise further. While there have been many causes that have lined up to increase gas prices, the Government’s decision to cap the prices companies can charge and skip investing in gas storage have made this a crisis waiting to happen. But it’s also a wake up call to accelerate a shift from gas. Over a third of gas is used in heating and it would be great to see the Government’s long-awaited Heat and Buildings strategy. This will help us all move ahead with using less gas over time.”

Professor Mike Waterson of the Department of Economics said: "Energy supply companies, large and small, buy their requirements through a series of wholesale contracts for supply at various dates into the future, with some proportion of that purchasing in the short-term market, which is clearly the one most affected at present. In doing this, they can of course make what in retrospect are mistakes, for example relying too much on short-term purchases. A large company, with a legacy of relatively price insensitive customers is then better placed to weather a price spike than a smaller company which has primarily attracted price sensitive customers through low prices, when there are unexpected wholesale price movements upwards."

23 September 2021

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