This year has been like no other for the energy market, with millions of customers seeing their bills soar whilst half of the UK’s suppliers collapsed.
Even large providers, such as Bulb, were not immune from the chaos with the firm placed into special administration by the Government.
And it is feared that prices will continue to rise into the New Year, as wholesale costs continue to increase across the board.
This is Money takes a look at how the crisis was sparked, how much prices have gone up by and what we can expect to happen in 2022.
This year saw some of the biggest changes to the energy market with prices soaring for many
What is the energy crisis and why did it start?
The crisis began in August. It was sparked by a number of factors, but ultimately was due to the lack of natural gas being produced, as well as an increase in demand.
Demand rebounded quicker than expected after the global pandemic, but reserves were slow to refill over this summer with supply from Russia lower than predicted.
The circumstances were not helped by last winter (2020 to 2021) being much longer and colder than normal.
There was also a lower output from renewable sources such as solar power and wind, creating more reliance on gas.
How much have bills increased?
As a result of this, wholesale prices started to rise with suppliers being charged much more for their gas.
They, in turn, then had to charge their customers more to cover the extra costs.
Whilst many had already hedged their bets and bought enough supply for a year in advance, meaning they were able to continue serving their customers, other providers had not done this.
This meant they were being charged the new, higher rate and could not afford it.
A total of 25 suppliers have collapsed since August, representing half of those in the market.
This means customers have been left with little options when switching providers.
When it comes to prices, the price cap is still in place for standard default tariff customers, meaning they are often better off than those starting a new fixed tariff.
The cap, introduced by Ofgem in January 2019, is designed to keep prices down for customers.
At present, suppliers are unable to charge more than £1,277, the level that was introduced at the last review in October 2021.
Whilst this is good for default tariff customers, despite being the highest cap yet, it meant some suppliers were paying more for the energy than they were charging and losing money.
Now customers coming off fixed deals onto new ones have found their estimated bills are increasing by hundreds of pounds with many reporting their annual bill is expected to reach over £2,000 – a massive jump.
It is not known what will happen to energy prices in 2022 but experts say they could increase
Can customers save money by switching providers?
At present, many are being advised to stick to a default tariff as it is capped by Ofgem.
The price cap is currently at its highest level of £1,277 – a jump of £139 from the previous cap – but this is still much cheaper than many fixed deals on the market.
The level is capped at a unit rate, so households will still need to be careful with their energy consumption this winter if they want to keep costs down.
The cap is also expected to increase when it is reviewed in April, with many experts expecting it to rise by around £300.
Customers on a long-term fixed deal are probably the safest at the moment as their prices won’t change.
However, those coming off a fixed deal may be better off joining a default tariff for now and waiting to see if it increases in April, rather than signing up to a new, more expensive fixed rate.
Alex Hasty, associate director at comparison site Compare the Market, said: ‘In the majority of cases, fixed energy tariffs currently on offer are more expensive than being on a default or variable tariff.
‘We urge people to check carefully before fixing any deal at this point in time and we clearly communicate this message before people start a comparison via our website.
‘As a rule, it is better to stay on a default or variable tariff than opt for a fixed rate alternative at present, as you will fall under the protection of Ofgem’s energy price cap.
‘We have decided to show people all available tariffs on our website, including those you cannot switch to via Compare the Market as this enables people to compare a range of prices relative to their current situation, which will likely lead them to conclude that staying put is the best option.
‘People should keep an active watch on Ofgem’s next price cap adjustment which will be announced at the beginning of February 2022, as it is predicted to rise again which could further impact energy bills from the start of April 2022.’
Concerns: Many households will be worried about soaring energy bills in the new year
Will the crisis be resolved in 2022?
It is likely that these problems will continue for some time.
Bills will likely still be high throughout the early part of the year, and will continue to rise if the price cap increases as expected in April. It will not be reviewed again until October 2022.
This is Money spoke to several experts, all of which said customers could expect further problems throughout the year.
Justina Miltienyte, energy policy expert at Uswitch, said: ‘Make no mistake, a lot of pain is coming for consumers when energy bills rise from April.
‘It brings into stark contrast how inadequate current support for the most vulnerable households is, making it critical that more is done to support those who need it most.
‘Unfortunately, we may not have seen the end of this energy crisis, but concerned consumers can be reassured that their energy supply will continue as normal and credit balances will be protected, in the event that more suppliers cease to trade.
We can expect another half a dozen suppliers to go out of business within the next month or so
Mark Bennett, Energy Helpline
‘If you are affected by your supplier leaving the market, don’t do anything until you are moved to a new provider appointed by Ofgem.
‘Wait for the dust to settle on the current situation before seeing whether there are any better deals available elsewhere.
‘Customers should note their meter readings now, and again when contacted by their new supplier, to ensure their bills are accurate.’
Mark Bennett, energy expert at Energy Helpline, added: ‘The difficult truth is that we are still in the middle of this market volatility and can expect another half a dozen suppliers to go out of business within the next month or so, as the whole sale market continues to see record prices being set.
‘This will, unfortunately, mean that much higher energy prices are coming for consumers, with the current estimate for the next price cap to be over £1800, an increase of around £550, due to come in April.
‘Given how turbulent the energy market has been in the last six months it is difficult to predict what will happen in the latter part of next year, and while energy costs do usually come down during the warmer summer months current trends suggest it won’t bring much respite to households bills in 2022.’
A number of experts have warned that bills are likely to increase even more in the new year
A spokesperson for energy market analyst Cornwall Insight said: ‘Suppliers are under a great of deal of pressure at the moment, which has increased this week as gas prices have reached new highs.
‘As a result of the continued increase in gas and electricity wholesale prices, Cornwall Insight’s forecast of the default tariff price cap has risen to approximately £1,800 per annum for the summer 2022 period – this figure excludes the impact of recent energy supplier failures.
‘With concerns over energy supply availability for the coming winter and wider geopolitical issues that may affect gas European supplies in particular next year, the wholesale markets are experiencing renewed volatility.
‘At the same time, question marks remain over how and when the costs from recent supplier exits will be recovered from bills, with our initial estimates indicating that this could add more than £100 to our above cap forecasts.’
What help is available for those struggling with bills?
Despite the grim warning of bills increasing, there are a number of schemes available for households who are struggling to pay their energy bills.
This includes the Warm Home Discount, which provides eligible households with a £140 discount on their bills – but numbers are limited so customers are encouraged to apply quickly before spaces run out.
Winter Fuel Payments are also available for those who get the state pension or another social security benefit.
Meanwhile, Cold Weather Payments are given to those whose average temperature in their area is recorded as, or forecast to be, zero degrees celsius or below over seven consecutive days.
Households will get £25 for each seven day period of very cold weather between 1 November and 31 March.
Miltienyte adds: ‘Devices such as smart meters can help you keep track of how much energy you’re using in real time, in pounds and pence, and can be useful for budgeting.
‘It’s also worth looking at ways you can make your home more energy efficient throughout the winter – purchasing draft excluders, making sure your radiators are obstruction free and looking into insulation grants to make your home more energy efficient.’
Anyone who is struggling with their energy bill are encouraged to contact their supplier to see if they can get help with their payments. This could include setting up a payment plan.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.