Rising energy bills have households across the country fearing for the winter.
Many will be pushed into fuel poverty, forced to choose between heating and eating, while inflation could soar from its current high of 10.1% to over 18%, according to Citi investment bank – making the cost of living even higher.
Prime minister Liz Truss is set to announce her new plans to ease the strain on households – and potentially businesses – today, although it remains unclear what route she’ll take right now.
But what’s behind this crisis gripping Europe?
We get a more than a third of our electricity from natural gas and 85% of UK homes use gas for central heating. But, wholesale gas prices are around ten times more expensive than they were last year.
Russian president Vladimir Putin’s invasion of Ukraine in February has rocked the global energy market, as Russia provides a large portion (40% in 2021) of natural gas to Europe.
Now that Ukraine’s allies are trying to punish Russia for its aggression against its European neighbour, different governments are trying to wean itself off Moscow’s exports.
However, that means there is a squeeze on all the other sources of natural gas, as European countries have to share resources outside of Russia, driving the price up.
Shortage of gas storage
Harsher winters have drained our gas supplies, and a key storage facility belonging to Centrica closed back in 2017.
Shadow energy minister Ed Miliband said this move alone left the UK with “close to zero storage stocks” – leaving it particularly vulnerable to fluctuations in the market, as we are seeing right now.
A Labour spokesperson also told the Telegraph: “All other European countries have been filling their storage over the summer to prepare for the critical winter to come, but Tory decisions over the last 12 years have left us insecure and families exposed to higher bills.”
For comparison, Germany has been able to increase their gas supplies to 80% over the last few months, and is expected to reach 85% next month.
Increased demand due to weather
Extreme weather (such as this summer’s heatwaves) have led to an increase in air conditioning and refrigeration demands, while the winter of 2021 also left gas supplies depleted in the UK, as people turned to their electricity supplies for heating.
Asia and Europe had a long and difficult winter last year, which used up significant amounts of gas, again pushing prices further up.
The Office for National Statistics (ONS) said that in 2020, 35% of the UK’s electricity generation came from gas, while the rest comes from renewable sources. However, because many of these depend on the weather, Britain often falls back on its gas supplies.
Reopening of economies after Covid
During the pandemic, so many industries closed down that the demand for energy (particularly in the UK) fell.
But, after several lockdowns, the reopening of economies around the world saw a sharp spike in energy usage – again, depleting the supplies.
The sudden shift in the demand for energy as Covid restrictions eased triggered 28 energy providers to go under.
Customers with these bust providers then moved to another supplier – meaning the companies with an increased client list started to increase the admin costs of the transfer to consumers.