Why the UK energy market is in distress
In response to the emerging UK energy crisis, Hirbod Assa, Senior Lecturer in Finance and Fintech at the University of Kent’s Business School explains how this happened
‘The UK energy market is in distress, as the gas price hikes have resulted in the electricity price explosion. This will definitely end up with the smaller energy supplier companies’ bankruptcy as the Government has pledged not to bail them out. More importantly, customers will suffer too, regardless of the energy price caps and the Government reassurance of no energy shortage; they will have to pay for part of this adverse event ultimately.
‘Besides the major reasons for the ongoing crisis, a combination of international political antagonism, natural events, and post-Covid economic resurgence, many now talk about the fact that the smaller companies did not hedge themselves against price hikes in the energy market; a market of almost 50 companies that, except the so-called “big-six”, are small.
‘But hedging is not cheap, especially in markets that the major risk is systematic, (i.e. price increases here means price increases everywhere). The hedging costs must be reflected in supply prices, which seem to remove the primary advantage of forming a competitive market of many smaller companies that offer lower prices. But that is the beauty of the market, it can correct itself, in this case by removing under-pricing.
‘Energy is directly related to the people’s livelihood, so the Government will need to protect the customers (who also benefited from low prices), but standing with the market principles, we can expect changes in the energy market.’
Hirbod Assa, Senior Lecturer in Finance and Fintech, Kent Business School, University of Kent
Hirbod’s research covers Fintech, Insuretech, Machine learning and Risk management. Hirbod has developed theories in Pricing, Hedging, Optimal contract design, Agricultural finance and Machine learning in the field of quantitative finance. He is also a member of the advisory board of the Agricultural Finance Review.
The University of Kent
The University of Kent is a leading UK university producing world-class research, rated internationally excellent and leading the way in many fields of study. Our 20,000 students are based at campuses and centres in Canterbury, Medway, Brussels and Paris.
With 97% of our research judged to be of international quality in the most recent Research Assessment Framework (REF2014), our students study with some of the most influential thinkers in the world. Universities UK recently named research from the University as one of the UK’s 100 Best Breakthroughs of the last century for its significant impact on people’s everyday lives.
We are renowned for our inspirational teaching. Awarded a gold rating, the highest, in the UK Government’s Teaching Excellence Framework (TEF), we were presented with the Outstanding Support for Students award at the 2018 Times Higher Education (THE) Awards for the second year running.
Our graduates are equipped for a successful future allowing them to compete effectively in the global job market. More than 95% of graduates find a job or study opportunity within six months.
The University is a truly international community with over 40% of our academics coming from outside the UK and our students representing over 150 nationalities.
We are a major economic force in south east England, supporting innovation and enterprise. We are worth £0.9 billion to the economy of the south east and support more than 9,400 jobs in the region.
In March 2018, the Government and Health Education England (HEE) announced that the joint bid by the University of Kent and Canterbury Christ Church University for funded places to establish a medical school has been successful. The first intake of undergraduates to the Kent and Medway Medical School will be in September 2020.
We are proud to be part of Canterbury, Medway and the county of Kent and, through collaboration with partners, work to ensure our global ambitions have a positive impact on the region’s academic, cultural, social and economic landscape.
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