Nina Chestney

LONDON, (Reuters) – Households in Europe are facing higher winter energy bills because of a worldwide surge in wholesale gas and power prices. Consumer groups warned that those most in need could face fuel poverty.

WHY THE HIGHEST PRICES

The wholesale price energy companies pay to purchase gas and electricity is what they sell to customers. Like any market, it can change depending on the supply or demand.

Heating costs are typically higher in winter due to increased demand. Summer prices tend to be lower.

However, prices are on the rise due to low gas storage stock, high European Union carbon price, low liquefied oil tanker deliveries, higher Asian demand, lower gas supplies than normal, and low infrastructure outages.

The benchmark European gas prices in the Dutch TTF hub are up by over 400%, while French and German power contracts more than doubled.

HOW LONG COULD THAT LAST??

The winter heating season in Europe usually begins in October. Wholesale prices will not drop significantly despite some promises by gas suppliers.

Analysts expect that prices will remain high next year.

Russia is Europe’s biggest gas supplier. This week, Russia said that Nord Stream 2 Undersea Gas Pipeline from Russia to Germany was certified. The regulator expects approval from Germany.

According to the regulator in September, they had only four months left for certification. It stated it was not able to rule out Nord Stream 2 operation could begin soon. Furthermore, all technical requirements have been fulfilled.

Gazprom (MCX,:) could not supply Europe with more gas this winter because it has yet to fill its domestic gas storages. It is also producing near a 10 year high. Analysts at Bank of America.

Norway’s Equninor was inaugurated last month ()Europe’s second largest gas supplier said that it plans to increase natural gas exports. Norway provides just less than a third (33%) of Britain’s natural gas.

WHY IS THE RETAIL PRICE RAISING?

In recent months many energy suppliers have announced increases to their retail tariffs, which means that consumers will pay a higher wholesale price.

A large portion of bills can be attributed to wholesale costs. For example, 40% can be charged by wholesale costs in Britain for a dual fuel bill.

Suppliers can increase consumer retail prices if wholesale market prices go up.

(Graphic: How much does a UK household spend on dual fuel?: https://fingfx.thomsonreuters.com/gfx/ce/klpykerqqpg/Pasted%20image%201628230995436.png)

Wholesale market suppliers can purchase energy on the same day as delivery. They are able to order up to three months ahead.

They need to be able predict when the prices will go down and to buy enough to satisfy their customers.

Suppliers might need to purchase more energy if they don’t have enough. Market movements could mean that prices will rise. Prices have risen all year.

Is it possible for anyone to enter?

Kadri SIMSON, European Energy Commissioner, has stated that she will soon present a plan for overhauling the EU’s gas market.

Spain suggested one idea: The EU could buy gas together in order to leverage the power of its single marketplace of 450m consumers. This would create an EU strategic gas reserve. Details are not available on how it would work.

Many national governments announced plans to ease winter household burdens, including price caps, subsidies and redirecting profits from energy companies to consumers.

Britain relies on natural gas to heat its homes and has introduced a price cap for the most popular energy tariffs starting in 2019. This was done to end what Former Prime Minister Theresa May called “rip off” pricing.

Ofgem, Britain’s energy regulator, raised the limit on standard variable tariffs (the most popular tariffs) by between 12-13% and October. The regulator said Friday that it expected a “significant increase” in the cap for next April.

Some proposals for UK government intervention include state loans, the establishment of a “bad banking” to assist energy suppliers as well as windfall taxes to reduce household expenses.

Moody’s Investor Service said that it was unclear how such proposals would be implemented or what impact they would have on the sector.

WHAT CAN CONSUMERS DO?

Britain enjoys the largest choice of energy suppliers because it is a deregulated market.

Smaller firms are less able to protect their wholesale power purchases from rising prices in a market with 40 suppliers. Nine firms that serve more than 1.7 million customers (or 6%) have stopped trading since September.

Consumers are often encouraged to switch suppliers or get a lower rate.

Consumer groups in Britain say that standard variable tariffs are the most affordable, as small suppliers are unable to provide them with the best deals.

But the price cap doesn’t mean that anyone should pay the maximum. “The price cap is a ceiling on how much you can pay per unit of electricity or gas. If you use more you will pay more,” Andrew Capstick (energy analyst, price comparison website moneysupermarket.com) said.

Ofgem, Britain’s regulator, urges customers to get in touch with their energy supplier if they are having trouble paying their bills.

Energy efficiency measures like smart meters and energy-efficient lighting are all recommended. However, these may come with upfront costs. It is easier to cut down on energy use during the summer.