The UK energy crisis

How has it come to this?

As commercial energy costs continue to rise exponentially in the absence of any price cap and in turn fuelling both inflation and the cost-of-living crisis, here we explore exactly how the UK energy market has reached this crisis point.

At first glance, it is natural to attribute the unprecedented wholesale market increases to the Ukraine conflict and in many respects this is correct.

However, there is a bigger picture.

In the calendar year 2021, the UK imported just 4% of their gas, a key component in the generation of electricity, from Russia. In the month of June 2022 and following the invasion of Ukraine territory, the UK imported no oil, gas or coal from Russia.

Therefore, the depletion of Russian gas supplies has very little direct impact on the UK energy market, albeit shortages elsewhere in Europe naturally lead to rising prices in global markets as competition from other gas sources, such as LNG, intensifies.

But even this perhaps doesn’t tell the whole story.

Energy costs were rising before the invasion of Ukraine earlier this year and there is a strong argument that we should be self-sustainable and therefore entirely immune to events overseas.

Credence is brought to this argument by the quite remarkable fact that as recently as 2004 the UK was actually a net exporter of energy.

Yes, in 2004 and in accordance with the majority of the 25yrs that preceded this date, we had zero reliance on overseas territories to meet our energy requirements.

So how have we now arrived at a situation whereby we are typically reliant on imports for touching 40% of our requirements?

A situation compounded by what many would consider being wholly inadequate gas storage facilities following the closure of the Centrica owned Rough gas storage facility in 2017, owing to the government’s unwillingness to subsidise requisite and costly maintenance and upgrades.

Alarmingly perhaps, until Rough is back online, the combined sum of the UK’s gas storage facilities allows for provisions for no more than 5 days’ worth of winter gas requirements.

By way of comparison, our counterparts in the Netherlands have a storage capacity of roughly nine times the size of ours, despite a population over three times smaller, whilst Germany’s are as much as sixteen times larger.

Is it any wonder then that with such a heavy reliance on imports combined with minimal storage capacity we are at the mercy of hyper volatility in the face of any supply or a geo-political issue?

Doubtless, the UK’s consumption has increased exponentially since 2004 however, this would have been largely predictable given population growth and the ongoing digital revolution.

Energy infrastructural changes are of course invariably expensive, long-term in nature and can be logistically challenging, but seemingly successive governments haven’t given adequate regard to the progressive evolution required to meet rising demand, whilst remaining largely or solely self-sufficient.

Is it a case of those in power historically “not wanting to plant the seeds for the fruit they will never eat”?

In mitigation and for balance, the UK has successfully doubled its proportion of energy supplied from low carbon sources in the last 20yrs. However, this still only accounts for around 20%. Reliance on environmentally damaging coal has also been scaled back on a huge scale.

Interestingly, Nuclear, which has long been mooted as being key to the country’s net zero target journey and is currently earmarked to provide as much as 25% of our projected energy demand by 2050, was only responsible for 5.8% of our energy requirements in 2021, a fall from 8.4% in 2000. This would appear to highlight contrasting policies and a lack of progression over the years.

The first new Nuclear power station for decades, Hinkley Point C in Somerset, is expected to come online in 2026 whilst talks around Sizewell C, to be located in Suffolk, are said to be very much at an advanced stage.

Encouraging yes, but it does give rise to the question as to whether we are now guilty of “closing the stable door after the horse has bolted”?

Widely regarded as the greenest forms of energy generation, wind and solar, still only account for around 4% of grid consumption combined and there have arguably been insufficient financial incentives offered to commercial organisations to go “off-grid”, with the likes of solar technology having been tried and tested for many years now.

Equally, environmental campaigners and political activists will point to the lack of steps taken to reduce consumption through the likes of insulation.

Lastly, there is the highly controversial issue of fracking. Fracking is currently banned on the UK mainland but has been extensively trialled in Lancashire with Cuadrilla claiming available reserves are worth over £125 billion. There is seemingly unlikely to be a change in policy in the absence of any major scientific developments or a substantive shift in public opinion.

So where do we go from here?

It may well be that the UK is learning an extremely harsh lesson in the current climate and hopefully, this will prove the catalyst to eliminating any lingering complacency around the need for independence and control over our energy provisions, whilst ensuring that the all-important net zero targets are realised.

It’s undoubtedly a challenge, but one that cannot be shirked or overlooked. 

For more on this topic please also read our Interim Mitigation Energy Market Update Report here.

If you need help navigating this energy crisis please don’t hesitate to contact us today. Our team of experts will be happy to help you look into alternative solutions such as renewable energy and flexible purchasing.