What’s Causing The Massive Increase In UK Commercial Energy Prices?
The United Kingdom is in the throes of an unprecedented energy crunch. Some call it a crisis, which, if not addressed, may be comparable to the Arab oil embargo of the 1970s – with dire economic, social and political consequences.
Brent crude is at a 5 year high of $84 per barrel while spot natural gas prices are up more than 500% year-over-year, forcing highly polluting gas-to-coal switching and putting the brakes on the UK’s and EU’s green energy transition. Resurgent energy demand post-Covid, extreme weather events (unprecedented heatwaves and prolonged winters), supply chain disruptions, and poor regional and global stockpiling have all contributed to UK & Europe’s current crisis.
Russia’s supremo, Vladimir Putin, may have a reason to pop a champagne bottle in view of the EU’s sanctions on the Kremlin. He says that the UK & Europe had created a self-inflicted wound. He may be right.
Central Power, who are always looking for the cheapest reliable energy prices, have commented:
“The UK & Europe find themselves between a rock and a hard place. With global liquified natural gas (LNG) markets tight for nearly a year, and Russia facing its own upstream and infrastructure issues, Europe and UK’s two key sources of flexible gas supply have not shown up.
Given just how depleted the region's storage situation is, any tremble of news, be it weather or supply outage, has the power to send markets in search of ever higher price anchors, with fundamentals dictating the market will need to balance on demand destruction, a dynamic already being seen in industry across both Asia and Europe.”
The UK scrapped it’s Rough Storage facility in 2017, despite protests from within the UK business community, and we went from having at least a month's gas storage in reserve down to 3-4 days storage.
This in itself has been an unmitigated disaster, a relic from Teresa May’s government. Taking into account the UK had now left the EEC at long last, the proper measures on storage were ignored owing to the assumption that the USA and other countries were awash with LNG (Liquid Natural Gas) and gas was always plentiful.
The Government also erroneously imposed a price cap on the UK domestic suppliers, which has resulted in many of the smaller electricity suppliers going to the wall owing to increases in wholesale prices meaning they could not increase their rates to customers.
The UK Government still hasn't learnt the old adage that “ You can't buck (any) the market”, which in itself is basic economics.
Once LNG supplies are afloat, they will naturally dock at whatever country is prepared to pay the highest price, with no guarantee of these supplies coming to the UK.
This unfortunate confluence of factors – rare as it may be – illustrates the concerns of many energy experts, including us at Central Power about our hasty transition away from traditional baseload power sources (gas, coal, and nuclear) to intermittent renewable generation.
The Government's Europe’s master plan for carbon neutrality has pushed us away from long-term purchase agreements and towards short-term pricing, making the crisis even more costly to energy utilities and other consumers who are now seeking alternative fuel sources.
Gas exporters like Russia and Qatar are ready to cash in, and the UK is now taking more gas from Qatar, after recent negotiations. Qatar prefers East Asian customers who pay a premium. The UK & EU is no longer the top market. This trend is consistent with exporters around the globe. Coupled with a decrease in domestic production, such as the depletion of the giant Groningen gas field in the Netherlands, the UK & EU is left to bid higher and higher for imports. This coincides with overall uptick in demand for LNG across the globe in an effort to use it as a bridging fuel away from hydrocarbons
The UK as a country, is sitting on large coal and gas reserves, and is also suffering from a lack of investment in nuclear over the years.
Central Power has been predicting this energy crunch for some time, but the steepness of the rise in Gas and Electricity prices took even us by surprise.
Nevertheless, our company’s investment in providing access to Solar Technology and other added offerings such as Voltage Optimisation, and other new associations, including finding Tax advantages and Business Grant schemes for their clients has, and is working well.
Given the state of the market, Central Power will always try to offset their client’s massive energy price increases, with these new methods and any other Commercial Energy saving tips.
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