Risk Briefing's risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. We analyse the drivers, provide the context and conclude with recommended action. The following scenario has been added to the latest country update.
The electricity market remains volatile
Moderate probability; High impact; Intensity = 12
The electricity market in the UK was among the most fragmented in Europe as at early 2021, with more than 70 household energy providers. Much of this has been due to loose regulation, with many providers having taken on significant indebtedness to increase their customer base. However, a sharp rise in wholesale natural gas prices and a price cap on increases in retail rates for electricity had led to the insolvency of more than 25 of these providers by November. Ongoing volatility in the natural gas market is likely to continue to put a strain on energy providers and wholesale energy buyers. Meanwhile, the increased reliance on wind power and aggressive decarbonisation goals set by the government have made the UK less able to provide "peaking" power-maximum power that the power plants can sustain for a short time during peak demand. The UK is also a net energy importer, primarily relying on imports from France, which has twice mooted cutting off energy supplies to Britain over Brexit-related disputes. Although EIU expects prices to remain high and to vary in the short term, major supply disruptions are unlikely to occur, which could lead to regular blackouts. Businesses should ensure that their electricity contracts are robust enough to address issues stemming from supply disruption and price spikes.