Consumers will reimburse gas distribution networks (GDNs) up to an extra £100 million in the coming financial year because the high gas price has caused a jump in the bill for replacing gas ‘lost’ from the networks.
Around 0.4% of gas transported through the network is lost in ‘shrinkage’ – a mix of leakage, gas theft and ‘own use’ requirement in the gas transport process. The cost of shrinkage gas is billed to customers based on the predicted cost. Shrinkage also represents around 95% of the carbon dioxide emissions involved in operating the gas networks.
The increase in gas prices saw the cost of shrinkage jump up in the year to April 2022. At Cadent, which operates across the Midlands and as far south as the River Thames, gas price increases during the year to end March 2022 resulted in increased shrinkage costs of £58 million, up from £12 million for 2021. SGN, which operates gas networks in Scotland and southern England, said its cost of shrinkage gas for the same period was £33.5 million – £25.5 million higher than it had forecast.
Cadent and SGN are the largest gas networks; a similar rise in costs at WWU and Northern Gas Networks, the two smaller networks, could bring the cost to the consumer of shrinkage gas to the £100 million mark for the year.
SGN’s annual report said “Management consider the impact of the rise in wholesale gas prices to be material in value, one off in nature, and as such consider it appropriate to disclose as an exceptional item. These costs will be recovered in the next financial year under the regulatory mechanism and so the corresponding revenue will be disclosed as exceptional in the subsequent period.” Since the statement, gas prices have been volatile but have averaged significantly higher than in previous years.
The two companies also noted additional costs to the GDNs following on from the high gas prices. Insolvency at gas shipper CNG resulted in a bad debt to SGN recognised in 2022 of £5.3 million.