Why costs are rising and how the price cap could change

The sector is facing further challenges after warnings that Britain faces a greater risk of blackouts this winter after a fire knocked out a cable connecting electricity from France to the UK.

National Grid’s electricity system operator (ESO) believes supply will meet demand – but has cut its forecast of buffer supply. It has also warned of higher costs to fire up generators to balance the system, which will ultimately be passed on to household bills.

How long will it go on for?

It is not clear, but some experts believe high prices could remain elevated until 2024/2025 when new supplies of liquified natural gas start up. How high they remain may have a lot to do with Russia, which said on Wednesday it was prepared to boost supplies to Europe. 

Russia has faced questions over whether it has been withholding supplies in order to put pressure on Germany to quickly approve a new pipeline from Russia to Germany, Nord Stream 2. However, some experts have questioned how much extra capacity Russia has available to send, given its own production constraints and domestic demand. One turning point could come in November when Russia’s timeframe for filling up its own stocks ahead of winter comes to an end and it may have more to send elsewhere. 

What is the Government doing? 

The most significant intervention by the Government so far has been to step in with financial help for a fertiliser company which shut down two plants in England last month due to soaring natural gas costs. The shutdown threatened a shortage of carbon dioxide, which is a by-product of fertiliser production and is needed for food processing and other major industries. 

It is facing calls to step in further and help energy suppliers with the costs of scooping up customers from failed rivals, as well as to cap costs for manufacturers. 

So far it is taking a relatively hands-off approach, however, saying there is no problem with security of supply.