More suppliers may go bust next winter, MPs warned

Further bankruptcies of suppliers may be in the pipeline next winter because companies will be less protected by hedging strategies than during the last six months, an energy academic has warned.

Giving evidence on energy security to the Business, Energy and Industrial Strategy Committee on Tuesday (8 March), Oxford Institute for Energy Studies research fellow Dr Jack Sharples said retailers will be “worse prepared” than they were heading into last autumn’s surge in wholesale gas costs.

Back then, many large supplier had forward purchased energy when prices were much lower, he said: “In advance of the price cap going up on 1 October last year, the larger and cannier suppliers were well hedged.

“Now, obviously 12 months further down the line, the possibility of those companies having hedged in advance are much lower.

“We are beyond that and now all the forward prices are high so it’s going to be difficult for energy companies to keep straddling that gap, which is why I fear we may see further bankruptcies of energy providers and we may need a more activist approach by government assisting both consumers struggling to pay bills but also recognising there will be companies in trouble as well.”

Sharples also warned that the UK lacks scope to switch “rapidly” to alternative fuels to gas.

He said: “There’s not much we can do about that in the short term. We need every available alternative technology but that probably doesn’t help us over the next six months as we prepare for winter”.

And the academic rejected as “terrible” the suggestion that the UK could preserve its relatively healthy supplies of natural gas, for which it is less reliant on Russia than the rest of Europe, by switching off its gas interconnectors with Belgium and the Netherlands.

Michael Bradshaw, professor of global energy at Warwick University, told the committee that the spiralling cost of natural gas means the government may “need to rethink” its Hydrogen Strategy, which was published last summer.

He said the soaring price of wholesale gas undermines the strategy’s assumption that so called ‘blue hydrogen’, which is created from natural gas, should come on stream before the ‘green’ and hitherto more expensive version produced using renewable electricity.

Bradshaw was backed up by Doug Parr, head of policy at Greenpeace UK, who told the committee that current gas prices means green hydrogen is cheaper to produce than natural gas.

He also said the escalating price of gas means that energy efficiency retrofits of buildings and heat pump installations are now “more economically efficient” than before the current crisis.

Parr additionally told the committee that such initiatives and accelerating the roll out of solar and wind power are the only “practical” options open to the UK government in the current decade for reducing its reliance on volatile and expensive gas imports.

He said: “There are all sorts of things we can do within our control and we should harness this moment to get on with them.

“All the (climate change) benefits are clear so we should go ahead and do it because we know there is a security imperative as well.

“This is now a security matter not a climate thing that can be kicked into the future.”