UK energy crisis: why are energy prices rising?
Those who have watched the news recently may have noticed lingering problems with the internal energy supply market. Wholesale prices have skyrocketed, causing a number of smaller energy providers to go bankrupt and forcing Ofgem to scramble to find new homes for its customers.
While there’s no need to panic and start storing anything (please), it’s important to understand what’s going on and why. It’s not always easy to get acquainted with the ever-changing elements of the energy industry (as well as geopolitical tensions), but we’ll do our best to keep you up to date.
Harsh winters and growing demand abroad
Asia experienced a particularly cold winter in 2020, resulting in a huge increase in energy demand. This was combined with many countries reopening, which naturally meant more electricity and gas were needed to power them as they awoke from covid-induced sleep. As much of the liquefied gas is produced in Asia, this meant that there was less energy reserves for Europe, which naturally pushed the price up.
China is of course playing an important role as its energy needs skyrocket. Imports have skyrocketed, leaving even less energy for poor old Europe.
Gazprom accused of market manipulation
As energy supplies flowed to Asia via Europe, Russia was unable or unwilling to bridge the gap depending on who you ask. Gazprom, Europe’s largest natural gas supplier, has come under fire for appearing to do little to meet growing demands from European nations. The EU has now called for an investigation to see if the move was intentional, with the accusation being that they have deliberately withheld the energy supply in order to keep the price high.
Gazprom and the Kremlin naturally denied these accusations. Gazprom stressed that they had fulfilled their contractual obligations towards Europe. Relations between the EU and Russia remain cold at the best of times, and this is unlikely to do anything to warm relations up.
Why things are particularly bad for the UK
All of these factors mean problems for Britain. What makes it worse is that we have our own issues at home.
As with many problems in the UK, the weather is partly to blame.
One factor is related to our wind turbines, which as of June 2021 provided around 24% of the electricity to our homes. Unfortunately, we have had a high pressure system that has been lingering in Western Europe since mid-August. This caused quieter weather and less wind, resulting in lower power generation. Unfortunately, this is only part of the “perfect factor storm”.
Second, we rely heavily on nuclear power to power our country (around 25% of electricity currently comes from nuclear power). Unfortunately, many of our nuclear power plants are currently out of service. This is due to urgent maintenance work that needed to be done.
We have also seen maintenance work on several gas platforms in the North Sea, causing further outages.
And, as if that weren’t enough, one of the main cables used to bring electricity to the UK from France recently caught fire.
UK relies heavily on gas from Europe
The UK does not have a lot of energy storage capacity. This means that we need a constant supply from our dear friends on the continent. Despite being one of the richest and most populous countries, the UK only stores 1% of natural gas in Europe and only 6% of our annual demand. As we are unable to store a large part of our own, we are at the mercy of the market and its fluctuations.
So what does this mean for the UK?
These various national and global factors have caused the cost of energy to skyrocket. In a nutshell, our own inability to be self-sufficient, combined with rising prices in Europe and beyond, has left us in a very precarious quote.
One thing we can be thankful for, however, is the cap on energy prices. This means that despite the surge in wholesale energy prices, our monthly bill cannot exceed a certain amount.
This does mean, however, that energy providers have to absorb all costs. This has led to the bankruptcy of 9 energy providers in the past month, and more are expected to bite the dust if the crisis continues.
If your energy supplier has gone out of business, you can check out our helpful guide on what to do next.