Soaring gas prices may not be temporary and more energy suppliers could go out of business in the coming months, the chief executive of Ofgem has warned.
Jonathan Brearley said “well above” hundreds of thousands of customers could be affected.
“Have a look at the change in the gas price – it really is something that we don’t think we’ve seen before at this pace,” he said.
Please use Chrome browser for a more accessible video player
Food industry to be hit by ‘sharp rise’ in CO2 cost
“We do expect a large number of customers to be affected, we’ve already seen hundreds of thousands of customers affected, that may well go well above that.
“It’s very hard for me to put a figure on it.”
Speaking to MPs at a Business, Energy and Industrial Strategy Select Committee (BEIS) hearing, he also said it was difficult to put a figure on how many firms would go out of business, adding: “We are going to want to have a ‘lessons learned’ after this.”
And he said: “It’s not unusual for suppliers to go out of the market. I think what is different this time is that dramatic change in the costs that those suppliers are facing.
“We do expect more (suppliers) not to be able to face the circumstances we’re in, but it’s genuinely hard to say more than that, partly because that means predicting what may happen to the gas price.”
The gas spike caused two domestic energy suppliers to go out of business last week.
When asked about the future of the energy price cap, which protects consumers, Mr Brearley said it was clear cost pressures will feed through to customers’ bills.
The government and Ofgem were warned as early as two years ago about the fragility of the energy sector, the chief executive of supplier trade body Energy UK said.
Emma Pinchbeck told MPs on the BEIS committee: “I took this job a year ago. When I was hired, the chairman of Energy UK said that your biggest challenge is going to be the vulnerability of the retail market.
“I know that for a year or more before that my team have been making the case to the regulator and the government that the sector is fragile.
“There’s a short-term crisis here, which is in some ways out of our control – it’s to do with the gas prices – but it’s been exacerbated and arguably caused by our regulatory design.
“And that is a resilience and security of supply risk in the future. It’s terrible news for customers in the long run.”
She said regulators and politicians should stop dismissing suppliers’ warnings the market design is flawed.
“In any normal market we have companies that fail,” she added. “The point is, right now, we think that good, well-run companies will fail. And that’s a function of both the pricing shock but also market design.”
Dermot Nolan, the former chief executive of Ofgem, told Sky News he was “confident that the lights will stay on”.
Please use Chrome browser for a more accessible video player
How to deal with spiking gas and electricity bills amid the energy crisis
Business Secretary Kwasi Kwarteng did not rule out a potential windfall tax on firms which have benefited from the rise in gas prices.
Darren Jones, chairman of the Business, Energy and Industrial Strategy Select Committee, said Spain had imposed a levy on “the generators and traders who are making very significant profits” to fund protections for consumers.
Asked if that was a possibility, Mr Kwarteng said: “We are looking at all options.
“What they are doing in Spain is recognising that it’s an entire system – the energy system is an entire system.
“I am in discussion with Ofgem and other officials, looking at all options.”
It comes as tens of millions of pounds worth of taxpayers’ money could be used to subsidise a major US-owned fertiliser manufacturer to ensure the CO2 supply for the food sector continues during the energy crisis.
Mr Kwarteng said the government would provide “limited financial support” towards CF Fertilisers’ running costs to prevent food shortages in Britain’s supermarkets.
The agreement will remain for three weeks while the “CO2 market adapts” to a surge in global gas prices, BEIS said.
CO2 is used to stun animals in slaughterhouses and keep packaged products fresh.
Asked if he was worried about panic buying in supermarkets, which have warned they are finding it difficult to stock their shelves, Prime Minister Boris Johnson said: “I don’t think that will happen, I think that we’ve got very good supply chains, as I’ve been saying over the last few days, and what we’re seeing is the growing pains of a global economy recovering rapidly from COVID.”
