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What Triggered the UK Energy Market Crisis and What is the Impact on BI Insurance Claims?

The UK’s energy wholesale markets have reached new highs, with daily average electricity prices rising above GBP 150 per MWh since early September 2021. A record high of GBP 424 per MWh, since at least January 2019, was reached on 15th September 2021 when a fire shut down the interconnector cable used for importing electricity from France to the UK.

Nordpool Day Ahead Auction Prices 

Nordpool Day Ahead Auction Prices

 

The fire exacerbated the effects of soaring gas prices during a global surge in gas demand following a low-wind season and a cold winter in the UK, Europe, and Asia and increased post-lockdown energy demand. More than half of the UK’s electricity is produced in gas-fired power plants. High natural gas costs not only squeeze the margins of electricity generators but also increase prices for the food industry which relies on CO2 within their production processes. In the UK, CO2 is mainly sourced as a by-product of the fertiliser industry, where gas is the highest input cost. Soaring natural gas prices forced some fertiliser plants to shut in recent weeks, leading to a shortage of CO2 with a knock-on effect on beverage manufacturers and the livestock industry, which uses CO2 to stun livestock before slaughter. A combination of these factors results in a gloomy outlook for the UK winter and festive seasons ahead, affecting customer behaviour, spending patterns and business trend prognoses.

The effects of this crisis on future business interruption claims require a detailed analysis considering various factors, such as changing margins adopted for reserve purposes and idle periods that would need to be factored into loss calculations. The use of historical data and standard prognoses cannot be relied upon, requiring a team of trained expert accountants with the ability to recognise multiple market and price drivers in a global context.

MDD has the expertise needed to address these issues. Contact us to discuss this ever-developing issue in energy claims.

 

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