Why are energy prices going up? Wholesale gas prices surge amid European tensions

The Minister of Economic Affairs, Kwesi Kwarteng, will hold further talks with representatives of the energy industry today (January 5th), as concerns about rising energy prices are growing.

Kwarteng held a virtual meeting with the energy bosses late last month after European gas wholesale prices rose to new highs. The continent has been in the grip of an energy crisis for several months.

However, the last meeting brought little concrete action to contain energy prices – and UK households are seeing staggering increases in bills.

READ MORE: Martin Lewis is urging £ 600 warning to everyone in England, Scotland and Wales

Why are energy prices rising?

Energy demand across Europe has skyrocketed since economies reopened after the worst of the pandemic, putting pressure on supplies and driving up prices.

More than two-thirds of UK gas is imported, which puts the UK at particularly high risk from price volatility. There is also a lack of long-term gas storage space in Great Britain, the rough storage facility in the North Sea was closed in 2017.

As a result, the energy regulator Ofgem raised its energy price cap twice last year – first in April 2021 and again in October – allowing providers to charge households more. More than 20 UK suppliers have gone bankrupt since September.

Recent tensions in Eastern Europe have exacerbated the problem. Russia is accused of curtailing gas supplies to put pressure on Europe, but the Russian government denies this and accuses Germany itself of reselling Russian gas to Poland and Ukraine.

On Tuesday (January 4th), European gas wholesale prices rose more than 30%, raising concerns about the potential impact on household bills.

Will electricity bills rise again in 2022?

UK households have been warned to expect further sharp increases in their energy bills in the spring when Ofgem is expected to raise its energy cap again.

Speaking to the Press Association, Money Saving Expert founder Martin Lewis warned that 2022 would be “a very tough year for many people” and that “significant” government intervention would be needed to mitigate the impact.

“We’re going to see energy prices rise by at least 50% in the system, and that is unsustainable for many,” he said.

Ovo Energy founder Stephen Fitzpatrick also recently warned that it was “almost certain” that UK households’ energy bills would double to an average of £ 2,000.

However, it is Financial Times Chancellor Rishi Sunak has reportedly told colleagues that the support the government can and will provide is limited.

Labor called for the 5% VAT rate to be suspended on energy bills, but Sunak is skeptical of the idea.

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