Energy crisis underlines value of efficiency and renewables

A perfect storm of events has led to a record short-term spike in wholesale natural gas and electricity prices, but experts and politicians alike have agreed that high prices are here to stay.

Posted on 29 September 2021

A perfect storm of events has led to a record short-term spike in wholesale natural gas and electricity prices, but experts and politicians alike have agreed that high prices are here to stay.

A quadrupling of gas prices over the last year and a knock-on increase in the cost of electricity have been causing havoc in the UK energy market, with several suppliers already going bust in September.

Perfect storm

There have been a number of contributing causes, including rising demand for gas worldwide due to the reopening of economies after COVID-19 and the legacy of a cold winter in 2020-21 which limited supply. In addition, several gas suppliers and power stations in the UK and Europe have been offline for lengthy periods due to various causes, and there has also been lower than expected gas supplies from Russia and supply disruptions from the US due to adverse weather events (a stark reminder of the impact worsening climate change can have on energy prices). 

Elsewhere, a tightening of carbon market rules in the EU has further incentivised the shift from coal to lower carbon gas for power generation, while lower wind speeds during the summer have resulted in reduced renewable energy generation in the UK which needed to be compensated with gas and other more expensive energy sources.

The UK has been particularly impacted compared to other countries because gas forms such a large part of the energy supply for heating, industry and power generation. The UK also has much lower storage capacity for gas than other nations.

Impact on business energy costs

The government has warned that many businesses could face higher energy costs as a result, although those with longer-term contracts can expect to have less exposure to the price spike.

According to energy consultancy Cornwall Insight, average gas contracts for SMEs have reached their highest value since at least 2012 when tracking began, while electricity contracts have also reached record highs.

Experts and politicians alike have warned that businesses should continue to expect rising prices over the long-term as demand increases due to the electrification of transport and heating. Power demand from electric vehicles alone is expected to be a massive 31 times higher than today by 2040.

Renewables and energy efficiency

Speaking to Parliament’s Business, Energy and Industrial Strategy Committee on 22 September, business secretary Kwasi Kwarteng said the current price shock was “not something that we think is going to be sustainable” but that “we have to prepare for longer-term high prices”.

Businesses can reduce their exposure to rising energy prices by taking energy efficiency measures to reduce gas and power consumption and, if possible, investing in their own renewable energy supply such as rooftop solar PV.

 

 

Posted under General Interest, Energy Efficiency and Environmental Technologies and Renewable Energy on 29 September 2021