The topic of discussion for the residents of the UK recently has been the energy crisis.
Due to a series of unfortunate events, including unfavourable weather, increased demand of natural gas and various geo-political events, there has been a ‘perfect storm of market forces’ leading to the energy crisis.
So, most of us are aware that there is an energy crisis as it has led to steep increases in gas prices in 2021 and will continue in 2022. In fact, it is estimated that the next review of the price cap is extremely likely to push the bills up by 50% from average of £1,277 a year for a dual-fuel bill to almost £2,000. The £700 rise in bills is astronomical and is likely to affect middle-class households as well as low-income households.
Now, this raises a couple of questions. Was the crisis avoidable? If not, at least manageable if proper protocols were put in place? Also, what can the government do now to protect the more vulnerable residents of the country?
Causes of the energy crisis
Most people have only noticed the existence of the energy crisis due to the recent headlines confirming the upcoming extortionate rise in their energy bills. However, what was happening in the background that led to this explosion of prices?
As mentioned above, there were a myriad of contributing factors that contorted the market forces at play. A mixture of increased demand for energy as well as reduced imports to Europe led to soaring wholesale gas prices around the world. For the UK, the problem could have potentially been mitigated to an extent if we weren’t so reliant on imported energy and had an adequate amount of energy storage. But let’s go into the details.
First, any action made by China is likely to cause a ripple throughout the world, and the global energy market is no exception. In 2021, China’s intent for a quick post-Covid economic bounce back resulted in an increase in Chinese demand for energy. Unfortunately, this coincided with an increased demand across Asia and Europe. If you factor in the cut in oil production after the initial drop in energy demand at the beginning of the pandemic as well as the depleted gas storage levels after long, cold winters in the countries across the northern hemisphere, the energy crisis is no longer surprising.
On top of this, Russia continues to reduce its supply across Europe. Just for the UK, Russia reduced its natural gas supply by almost 60% of the total supply in January 2021. This meant that most consumers in Europe had to look elsewhere for their energy needs, leading to an increase in demand and like clockwork, an increase in prices.
This issue is exacerbated by the UK's entrenched trend of relying on fossil fuels for electricity, homes, and heavy industry, despite having extremely low capacity for gas storage. Furthermore, the government’s insistence on ‘[cutting] the green crap’, led by the legacy of David Cameron almost a decade ago meant that there has been a halt on the development of green technology. The changes included ‘gutting energy-efficiency subsidies, effectively banning onshore wind in England and scrapping the zero-carbon homes standard”. What this means for the UK is that their fragile system is distictly exposed to the wrath of the unforgiving international market forces.
What are the solutions?
Since the energy crisis is a global phenomenon, there is very little that the UK government can do now to solve the crisis itself as there are a lot of moving pieces affecting the market forces. There are, however, a few things the government can do to alleviate some of the financial burden that the residents of the UK will have to face in the next couple of years. Additionally, they can take some of the lessons taught by this crisis to avoid being so uniquely vulnerable to any future crises.
First of all, let’s talk about how the UK government has responded to the situation so far. They approached Qatar to set up a long-term deal for natural gas and to gather some supplies. This could provide some stability in supply of liquified natural gas to the UK. However, the UK may not run out of a steady supply of gas, but it might run out of affordable gas - this is still a massive problem.
Thus, we return to the question of what the government can do to solve the problem of unaffordable gas. Their recent response of providing millions of low-income households with up to £350 to help with the cost of living is simply not good enough. It doesn’t take a mathematician to figure out that £350 is not the same as the £700 increase to the average consumer's annual bill. As Dale Vince, the boss of Ecotricity exclaimed, their response is “far too little, far too late”.
Some of the alternative measures proposed are: cutting bills by 5% by waiving the VAT rate on gas and electricity, green levies put through general taxation, spreading the cost, and even potentially some government funding. There is no simple nor definitive solution to the rising cost, but one of the favourite solutions is for the government to come forward with a loan scheme. So, the energy suppliers would be able to borrow money cheaply from the treasury over the next few months to mitigate the rise. What this means is that the suppliers would be able to spread the recent rise over several years, instead of it being an unmanageable burden for millions of households across the country. However, this does mean that the retail price of gas will not drop when the wholesale price eventually does, leading to higher energy prices in general for many years to come.
Many MPs and experts have spoken very favourably of renewables, arguing it’s the solution to the UK's vulnerability to the ever changing and volatile energy market. A principal economist at the Resolution Foundation, Adam Corlett, has argued that the over reliance of fossil fuels and lack of storage capacity will continue unless the UK “quickens our transition towards a net zero economy”.
This is backed by Jamie Peters from Friends of the Earth who stated that, “renewable energy is incredibly cheap and there’s an abundance of it at our fingertips. Knowing this, every effort should be made to increase our supply, and attempts to discredit the net zero agenda shouldn’t be taken seriously.”
In reality, is it really as easy as focusing our energy on building a stable renewable sector? Could this protect the UK from future energy crises?
Let’s look at the advantages of having an abundant renewable energy sector first. We all know it would be a welcome change for the environment, as the majority of the renewable sector (apart from biomass) is non-polluting during the conversion process. It is also practically free and unlimited, as there are areas of the country overflowing with everything needed - whether it’s hydropower, wind turbines or solar power.
Moreover, with the evolution of technology in general, creating the devices is getting cheaper and cheaper as the years go on. It is also important to stress the sheer number of jobs it would create in the high-tech renewable sector, as the majority of the cost related to this industry derives from labour required to develop this infrastructure. With all of these advantages, why is the UK (and the rest of the world) still heavily reliant on fossil fuel as an energy source?
On the other hand, there are quite a few shortcomings of renewable energy technology unfortunately. First of all, the energy created by renewables is not as dense as with fossil fuel power plants. This leads to significantly more installations of the renewable devices in comparison to their counterparts, resulting in more expenses and extensive land use for these plants. They are also discontinuous, as they rely on unpredictable sources for energy. Depending on weather or other external factors, the devices could essentially be rendered ineffective for large periods of time. Especially considering how expensive the storage systems are.
Technology is constantly improving and developing, investing in this sector now will only reap benefits in the future. Whether it will specifically reduce energy bills in the long run is at this stage unclear.
C Free Thoughts
It is terrifying to think that green technology might not be the ‘be all and end all’ solution to the energy crisis. However, what is scarier is that Consertative MPs are blaming rising energy prices on climate goals.
Although green technology still has its limitations, we still should believe it could and should play a critical role in solving the energy crisis. This should not be the ammunition for Net Zero scrutinisers to call for cuts to the green projects and to increase fossil fuel production.
No matter what, the government definitely has a role to play in ensuring that its citizens do not fall victim to ‘fuel poverty’. However, this should not come at the expense of the climate. At the end of the day, even though renewable energy does not form the complete solution - for now - it is certainly part of the solution to both the energy crisis and the climate crisis.