The UK may enter a gas supply emergency due to shortages this winter, according to energy regulator Ofgem.
“Due to the war in Ukraine and gas shortages in Europe, there is a significant risk that gas shortages could occur during the winter 2022/23 in Great Britain. As a result, there is a possibility that GB could enter into a Gas Supply Emergency,” Ofgem said in a letter responding to a request by energy generator SSE that the regulator should address the risk of possible insolvencies. The letter was first made public by The Times.
The UK reportedly relies on gas-fired power plants for about 40% of its electricity supply, while roughly 8 in 10 UK households use gas to heat their homes. In case of a supply emergency, some gas-fired power plants and other big gas users might be cut off and have to halt operations. They would then face imbalance charges which could result in insolvency, both SSE and Ofgem warned. According to a recent report from The Guardian, around 30 energy suppliers have already collapsed over the past several months.
“Even if such an emergency does not occur, the risk that it could occur is likely to force generators to reduce their forward and day ahead trading, reducing liquidity in electricity markets, and raising costs for electricity consumers,” SSE stated in its request.
The UK’s energy market is connected to those of continental Europe and usually relies on gas and electricity imports through undersea pipelines and cables from the EU and Norway if shortfalls occur. However, recent events which caused Russia to stop supplying gas to the EU via the Nord Stream 1 pipeline heighten fears of supply shortages.
Some industry experts say shortages are unlikely, but warn that prices may spike further in the coming months. According to the latest Department for Business, Energy & Industrial Strategy data, average UK electricity prices in 2021 were £18.9 per kilowatt-hour, but by the end of 2022, they are estimated to jump to £34.0/kWh.
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