The 2021–2022 Energy Crisis: Causes and Consequences
Introduction
The 2021–2022 energy crisis has been the most disruptive event in the GB utilities sector since market liberalisation. Both gas and electricity markets have been rocked by unprecedented price volatility, supplier failures, and regulatory intervention. In this article, I’ll explore the root causes of the crisis, its impact on both gas and electricity, and the consequences for consumers, suppliers, and the wider market. As always, I’ll reference key public domain sources and highlight the distinct but interconnected experiences of both sectors.
The Global Context: What Sparked the Crisis?
Gas
The crisis began in the global gas market. A cold winter in 2020–21 depleted European gas storage, while Asian demand for liquefied natural gas (LNG) surged. Supply constraints from Russia and lower North Sea output further tightened the market. By autumn 2021, wholesale gas prices in Europe had reached record highs (IEA: Gas Market Report Q4 2021).
Electricity
Electricity prices in GB are closely linked to gas, as gas-fired power stations (CCGTs) often set the marginal price. As gas prices soared, so did electricity prices. Compounding this, low wind output in summer 2021 and outages at nuclear plants reduced available generation, further tightening supply (National Grid ESO: Winter Outlook 2021/22).
The Impact on Suppliers
Gas
Gas suppliers faced a perfect storm: wholesale prices far exceeded the levels allowed by the Ofgem price cap, and many suppliers had not hedged sufficiently. This led to a wave of insolvencies, with over 25 suppliers exiting the market between August 2021 and February 2022 (Ofgem: Supplier Exits).
Electricity
Electricity suppliers were similarly exposed. The price cap, designed to protect consumers, left suppliers unable to pass on the full cost of wholesale electricity. The collapse of Bulb Energy, the UK’s seventh-largest supplier, was a high-profile casualty, entering Special Administration in November 2021 (BEIS: Bulb Special Administration).
The Role of Market Codes and System Operators
Gas
Xoserve, as the Central Data Service Provider, and National Grid Gas, as the System Operator, played critical roles in managing the fallout. The Uniform Network Code (UNC) sets out the processes for supplier failure, customer transfer, and balancing. For more, see Xoserve: Supplier of Last Resort Guidance and UNC documentation.
Electricity
Elexon, under the Balancing and Settlement Code (BSC), coordinated the transfer of customers and managed settlement obligations for failed suppliers. National Grid ESO worked to ensure system stability amid volatile market conditions (Elexon: Supplier Failure Guidance).
Consequences for Consumers
The crisis has had profound consequences for consumers:
- Rising Bills: Ofgem’s price cap increased by 54% in April 2022, reflecting the surge in wholesale costs (Ofgem: Price Cap Update).
- Supplier Changes: Millions of customers were transferred to new suppliers under the Supplier of Last Resort (SoLR) process, often losing fixed tariffs and facing higher prices.
- Market Confidence: The wave of failures has shaken consumer confidence in the market and raised questions about the sustainability of the current retail model.
Case Study: Bulb Energy’s Special Administration
Bulb Energy’s collapse in November 2021 was unprecedented. With 1.7 million customers, it was too large for the standard SoLR process. The government placed Bulb into Special Administration, effectively nationalising it temporarily to protect consumers and maintain supply (BEIS: Bulb Special Administration). This marked the first use of the Special Administration Regime in the energy sector.
Policy and Regulatory Response
The crisis has prompted urgent action from government and regulators:
- Market Review: Ofgem launched a review of supplier licensing and risk management practices (Ofgem: Supplier Licensing Review).
- Support for Vulnerable Customers: The government expanded the Warm Home Discount and other support schemes (BEIS: Energy Bills Support).
- Long-term Reform: There is growing debate about the future of the price cap, the structure of the retail market, and the need for greater resilience in both gas and electricity supply chains.
Lessons Learned and Looking Ahead
The 2021–2022 crisis has exposed the vulnerabilities of the GB utilities market—especially the risks of under-hedged suppliers, the limitations of the price cap, and the interconnectedness of gas and electricity. As we move forward, the sector faces tough questions about market design, consumer protection, and the path to net zero.
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