Worst-case scenario is gas price surge becomes more than short spike – minister

The energy price cap is facing “pressure”, a minister has admitted as the Government prepares for the worst-case scenario of high gas costs being more than just a “short spike”.

At least 1.5 million consumers have seen their suppliers go to the wall in recent weeks after the energy sector was hit by rocketing global wholesale gas prices.

Business minister Paul Scully confirmed there is pressure on the energy price gap, which he said is saving dual-fuel energy customers around £100 per year, but that it will be up to the regulator Ofgem to determine if it should rise.

The cap is currently due to next be reviewed in April.

Mr Scully told Sky News: “This is all part of the conversations that Ofgem will set that cap at, because supply prices are based on a number of factors.

“Clearly, as Government, we need to make sure we are planning for the worst-case scenario because we want to make sure we can protect consumers.”

Pressed on what the worst-case scenario looks like, he added: “That it goes on for longer than a short spike. I can’t give you a figure now.”

His comments came after the Prime Minister recently said the energy crisis is a “short-term problem” which the market will “start fixing”.

Asked about Boris Johnson’s remarks, Mr Scully said the issues could prove to be short-lived but ministers are preparing should they persist.

The Conservative MP said the Government realises some people are facing a “tough” winter due to the prospect of higher heating and electricity bills.

In the Commons, Business Secretary Kwasi Kwarteng acknowledged that people living in the north of the country will be hit hardest by energy hikes due to the colder weather.

Meanwhile, Mr Scully looked to reassure those whose suppliers have already gone bust, or may do in the future, saying Ofgem has a “tried and tested formula” for ensuring the lights stay on.

Avro, with 580,000 domestic gas and electricity customers, became the biggest of a series of recent failures in the energy market on Wednesday, with the number of collapsed companies accounting for more than 5% of the market.

Green – which also closed on Wednesday – PFP, MoneyPlus, Utility Point and People’s Energy have all exited the supply market in just over two weeks. Last month HUB Energy, which had just 6,000 customers, also stopped trading.

Ofgem has said it will ensure a new supplier is appointed to take over Avro’s clients and Green’s 255,000 households.

But Mr Scully said he could give no guarantees that those being switched to new providers can keep their previous tariff terms.

It comes only two days after his boss Mr Kwarteng said those being transferred would “be expected to pay the same amount”.

Mr Scully told Times Radio on Thursday: “No, that’s not going to be possible in terms of a guarantee.

“What we’ll have though is security. They don’t need to do anything because their transfer will be made directly through the Ofgem scheme, making sure that they have a company looking after them, supplying their energy.”

One supermarket boss said the UK needed to move towards using a “broader energy mix” in order to prevent future food supply chain trouble caused by inflated gas costs.

There had been fears of shortages on shelves after CO2 production dropped dramatically after crippling energy prices caused fertiliser plants – which produce the gas as a by-product – to pause operation.

Carbon dioxide is used for everything in the food sector from stunning animals before slaughter to keeping fresh products chilled.

As a result, the Government has since agreed to potentially pay tens of millions of pounds to subsidise major US-owned manufacturer CF Fertilisers for three weeks to ensure the supply of CO2 for the food and drink industries can continue.

Richard Walker, managing director of Iceland, told Sky News he was “confident” his supermarket had “fully stocked shelves” in the short term.

“However I think we’ve now got to think longer term,” he added.

“This loan is only three weeks: what happens after that, or what happens the next time the gas prices spike?

“We need a broader, more diverse and therefore more sustainable energy mix so we’re not so reliant on gas.

“We also need to look as a food industry, but also further up the supply chains, at different, better ways of capturing CO2 and potentially using alternative gases as well.”