Scotland faces bleak winter of soaring energy costs and electricity shortages

National Grid chief executive John Pettigrew has warned that in colder months ahead the margin between electricity supply and demand would be tighter than in recent years.

Last winter, National Grid was forced to issue a series of pleas to power generators to make more capacity available during particularly stretched periods.

It was a surge of more than 50% in wholesale fuel costs over six months with gas prices hitting a record high which led to Scots households seeing their energy bills soar by up to £139 a year from this month.

READ MORE: Anger as 1.5m Scots households face energy bills rise by up to £139 after Ofgem price cap hike

The high price of wholesale gas has put nine British energy suppliers out of business in the last month alone as price caps overseen by regulator Ofgem prevent the full effect of wholesale prices being passed on to consumers.

Credit rating agency Moody's has predicted that the surge in wholesale prices will result in more energy suppliers going bust.

It is predicted that the next revision of the energy price cap which will affect bills from the start of April, is likely to rise significantly to reflect the greater costs faced by suppliers.

Customers are protected from sudden hikes in gas prices through the energy price cap, which sets maximum prices and charges for those on a standard or default tariff.

High gas prices push up power prices in Britain as it remains dependent on the fuel for electricity generation.

The Energy Intensive Users Group, which represents steel, chemical and fertiliser firms, said surging costs had already resulted in steel production halting "at times of peak demand".

Last month the UK government confirmed a deal with US firm CF Industries to restart carbon dioxide production after a shutdown blamed on a surge in gas prices that had sparked a food supply crisis.

The shortage of carbon dioxide - a by-product of the fertiliser factories - led to warnings from food producers and supermarkets of shortages in the supply of fresh produce. The gas is to stun animals for slaughter and in packaging to prolong shelf life.

CF produces around 60% of the UK's CO2 supply, which is why the closure of the sites had prompted fears that shoppers could start noticing shortages in poultry, pork and bakery products within days.

A fire at Britain’s main electricity subsea cable with France last month has further prompted concerns over electricity supplies this winter. The fire will reduce imports from France until the end of March 2022, the National Grid has admitted.

Prices of natural gas, which had already been at record highs in the previous weeks soared more than 18 per cent at the news.

Gas production has also been 28 per cent lower in the UK so far this year because companies have been carrying out maintenance that was delayed due to the pandemic.

The turbulance in the energy market has also been compounded by some of the lowest wind speeds since the 1960s, which has dramatically cut output from the UK's 11,000 wind turbines. And there have been outages at some of Britain’s nuclear plants.

Speaking ahead of the publication today of the National Grid's official winter outlooks Mr Pettigrew told the FT: “As always you need to monitor those things because things can happen during the winter." That included including unforeseen power station closures and liquefied natural gas deliveries being diverted to other parts of the world.

He has said that Britain had multiple potential sources of gas, including imports from Norway as well as domestic supply from the North Sea.

But he acknowledged that it would have to compete on price with other parts for the world, in particular Asia, for other sources such as liquefied natural gas.

From this month, the three in four customers on default tariff customers paying by direct debit will see an increase of £139 from £1,138 to £1,277, while the rest who are on prepayment meters will see a rise of £153 from £1,156 to £1,309.

Analysts at energy consultancy Cornwall Insight have predicted the next cap will mean the typical household will rise by a further £300 to £1,600 and the impact of the crisis could be felt into 2023.

"The explosion of choice and innovation seen in the sector in the last decade has been fundamentally altered in a matter of months, and while all eyes will inevitably be on this winter, the need for an enduring solution to ensure that the gains experienced by almost three decades of competition are not lost," said its senior consultant, Craig Lowrey.

Earlier on Wednesday, the UK gas price traded as high as 400p a therm. The trading price was 60p a therm at the start of the year.

Jonathan Brearley, the boss of Ofgem, has warned that the cost of protecting customers from failing energy providers could lead to higher bills.