Soaring wholesale gas prices saw the collapse of 26 energy suppliers in 2021 and could lead to runaway household bills next year as the sector continues to struggle.
Energy suppliers had been paying 54p per therm of gas at the beginning of the year. By September, that had reached more than £3 and peaked even further to £4.50 just before Christmas. It was an unprecedented spike caused by something of a perfect storm on global markets.
Firstly, last winter was unusually cold in the northern hemisphere. Gas is still a key fuel in heating homes and businesses in much of the world, so the cold temperatures led to a spike in demand, and countries started eating into their gas reserves.
These reserves could have been topped up again over the summer, however, an unusually windless summer meant that wind turbines produced less electricity so gas power plants had to burn more than normal.
Meanwhile, less new supply came onto the market than first thought and demand from China was higher than expected.
This resulted in short supplies of gas and as a result, prices spiked.
Since 2019, UK suppliers have been limited in what they can charge customers because of regulator Ofgem's price cap.
The cap is moved twice a year and takes into account the price of energy - not often enough to keep up with this year's steep rises.
So when gas prices went up energy suppliers were soon put in a difficult situation where it cost them more to buy gas than they were allowed to sell it for.
It is an unenviable position for any business, and since early September 26 suppliers have bowed out of the market, with experts predicting further failures.
The episode has exposed several flaws in how the market works, and will likely lead to permanent changes.
Many energy suppliers should probably have insured themselves against price rises.
It is a practice known as hedging. An energy supplier will order all the gas and electricity it thinks its customers will need in the months or years ahead.
That way if prices spike, suppliers do not feel the pain, at least not until their hedging period is over, by which time the price cap should have caught up with costs.
And it will catch up in April when Ofgem next changes the cap. Predictions of where the price cap will be set have differed, but the most dire forecast came from investment bank Investec.
Its experts estimate that prices could go from £1,277 per year today for an average household, to £1,995, a rise of 56%.
Analysts at energy consultancy Cornwall Insight are slightly more positive about April's cap, saying that it will reach £1,865.
But when the price cap changes again in October 2022 it could go as high as £2,240, according to the consultancy's models.
While adding that this prediction was very uncertain, senior consultant Dr Craig Lowrey said: "With the energy supply sector still dealing with the exit of more than two dozen companies in a matter of weeks, the need to ensure resilience across the entire market is evident.
"Furthermore, it is not solely domestic customers that are dealing with these new highs in energy costs, as businesses will face their own set of challenges without the protection afforded by the default tariff price cap."
While price rises may only be temporary - how long they stay that high will depend on global gas markets - the impact of the gas crisis will be much longer lasting.
Andrew Bartlett, chief executive of Advice Direct Scotland, said: “These fresh warnings of looming price rises in 2022 will concern families across Scotland.
“It appears inevitable that steep increases are coming down the line.
“We know that many Scots are already worried about paying their monthly bills, and many have been rationing their energy usage, so this will add to the anxiety.
“Energy bills and energy contracts can be a minefield for consumers, which is why we have made free and practical advice available to anyone in Scotland.
“Right now, the best advice is to remain on your current tariff and don’t panic about the collapse of energy firms because Ofgem will move customers to a new company with no loss of any money owed.
“There is also support available for those in financial difficulty and we will be making further information available to consumers in the months ahead."
Anyone in Scotland worried about their energy bills can contact energyadvice.scot for free advice.
Get the latest money-saving and benefits news sent straight to your inbox. Sign up to our weekly Money newsletter here.
