Last 2021 and early 2022, a large number of energy companies in the UK went bust.
Now all that is on the news is how the UK Government are going to impose a windfall tax on energy companies because their profits are soaring.
How do these two things happen at the same time?
In: 23
There are energy suppliers and energy producers.
The producers actually produce the energy – they drill the gas (or import it via pipes), or run the power stations to produce the electricity.
The suppliers are just a shop that deals with small transactions, instead of bulk deals that the producers are in. They buy in bulk from the producers and sell in bite sized packages to regular users.
The problem is that producing energy has become very expensive – gas is in short supply internationally, which means that importing it has become very expensive. It also means that power stations which run on gas have to buy expensive fuel. There are also shortages of electricity in Europe, so the UK is exporting a ton of electricity, when they would normally import it.
The result is that producers are putting up their prices. Some energy suppliers made long term deals with producers locking in fixed prices for 2 or 3 years in advance. Some energy suppliers would buy whatever was cheapest a month at a time, so just have to pay whatever the producers are asking.
The problem is that there is a special law which limits the price suppliers can charge. This means that even though producers are putting up their prices, suppliers are not allowed to put their prices up.
While suppliers which had locked in prices years in advance were OK, other suppliers were paying the producers more than they were legally allowed to charge.
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