Business is business, no matter whether you’re selling pints of beer in a pub or shirts on a market, price is everything. Price your product a penny too high and your sales collapse, you end up bust. People can go to the supermarket for their beer, or they may start buying secondhand shirts at the charity shop, there is always somewhere else to shop, and people can even do without if needs be. It’s a simple matter of supply and demand and it always has been. But the UK Energy Market seems to have forgotten this simple fact. They appear to be suggesting that in order to keep making a small profit of just 2%, prices have to rise to unaffordable levels. These energy suppliers appear to think they’ve beaten the market, but, they’re wrong and they have actually, failed. They’re going to find that out the hard way.
You see, the notion that electricity and gas is essential to human life is simply wrong. Most people will cut back, they will turn the heating down a few degrees and use less energy, but some, will simply use energy and not pay, or pay only what they can afford. Some people will bypass their meters or fiddle with their meters to steal what they think is rightfully theirs, and, whatever calculation Ofgem have made to come up with a price that gives their members a 2% profit, it will become obvious to them shortly, that their calculation is wrong, very wrong. Ofgem have actually set their members up to fail spectacularly this coming Winter and many suppliers, if not all will end up nationalised as they collapse into insolvency. How many pubs have failed in the UK due to high prices? How many restaurants thought they could get away with putting a few more quid on peoples bills? Energy companies are not above market forces and come October, they will find demand and therefore turnover drops to levels which sees them racking up debt. They will raise prices again in January and the debts will mount faster. At 52p per KWh for electric and 15p per KWh for gas, it’s game over for these companies, they just haven’t worked it out yet.
“But, but”, goes the cry “demand is outstripping supply and people and businesses will have to pay high prices”. Well, let’s see shall we. Hundreds of thousands of small businesses will go bust this Winter in the UK, the Government has pulled the plug on subsidies to large companies like CF Industries who’ve had to cease manufacturing fertiliser in Teeside. The domestic market will cut back and many of those who can afford it will go solar. As demand falls, or is replaced with alternative energy sources, fossil fuel energy generators will be faced with having to reduce prices or go into liquidation. They are not above the market and they cannot dictate unaffordable prices for long. Demand for energy in Asia is connected to manufacturing goods and that means those goods will be priced out of the market. As demand collapses, many companies will fail and the record profits that the energy generators are currently making will not be enough to see them through the bad times that are surely coming. They have mis-calculated and they will find that out in the coming months. Just as Russia has now lost the western energy markets, so western energy generators will find their markets disappearing. Their prices are unaffordable and demand will drop like a stone. They will have to drop prices or face ruin. That’s what the market says and the market is never wrong.