UK energy regulator Ofgem is warning that the UK may experience gas supply shortages this winter.
Roughly 40% of the UK’s electricity supply is produced by gas-fired plants, and about eight in ten households use natural gas to heat their homes. The regulator is warning that if it is forced to declare a Supply Emergency, some gas-fired powerplants may have to be shut down, and the supply of natural gas may be cut to some larger gas users, forcing them to halt operations.
Ofgem warned that they then might face imbalance charges which could result in insolvency. Roughly 30 energy suppliers in the UK have already collapsed and shut down operations in the past several months, according to a recent report in The Guardian.
In a letter to energy generator SSE first made public by The Times, Ofgem addresses concerns SSE had about potential insolvencies among energy producers, saying, “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 [season] in Great Britain. As a result, there is a possibility that GB could enter into a Gas Supply Emergency.”
SSE had noted, in its original letter to Ofgem, “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.”
The UK has historically relied upon gas and energy imports through undersea pipelines and cables from the EU and Norway should it experience any shortfalls. However since Russia has shut down flows of gas through the Nord Stream 1 pipeline, both the Nord Stream 1 and Nord Stream 2 pipelines were sabotaged, and Western sanctions have taken Russian energy products off the European market, energy prices have skyrocketed, and supplies have grown unusually tight, prompting concern over supply shortages throughout the European Union.
Some analysts say shortages are unlikely, but that prices may spike considerably in the winter. According to data from the Department for Business, Energy & Industrial Strategy, in 2021 UK electricity cost £18.9 per kilowatt-hour, however by the end of 2022, it is estimated it will cost £34.0/kWh.
