Since January 2021, wholesale oil and gas prices have risen by an extraordinary 250%.
Firstly, this is the wholesale price that suppliers pay to bulk wholesalers. It is not the price you pay as Ofgem sets price caps in the UK for energy prices so you are protected for a period.
Secondly, 6 energy suppliers have already closed this summer and Bulb, with 1.7m customers, has suggested it will collapse without government help. Already, Ofgem has allowed the price cap to be increased in August but most consumers are still on fixed rate tariffs for now.
The problem may come when your fixed rate tariff ends.
The UK has a problem in that it does not have the same gas storage facilities compared to the EU as we have moved away faster than others from coal to gas to wind power. The EU has storage but Russia is controlling gas supply to Europe and increasing prices as demand falls to maintain revenue.
The UK has had a pleasant summer and September will little wind, this has reduced wind power production to a trickle.
If the UK has a mild and windy winter, we should be OK. That said, things never go to plan and if we have a cold winter there may be energy shortages.
Affect on Pensions and Investments:
Higher energy costs for businesses, that still have to function, whether it is mild, wet, windy or cold, will be passed onto clients. This means prices will rise.
Higher consumer energy costs will also be passed on the consumers as we expect Ofgem to allow further price cap increases. The means your own energy costs may rise.
We expect some government intervention but the government will not mind some price rises.
This may mean even higher inflation, which is bad for our pockets but good for devaluing public sector debt such as covid-19 borrowing before it is due to be repaid.
We are already putting inflation hedges in our client investment and pension portfolios. You need to plan your portfolio with a hedge on inflation.