Why Are UK Energy Prices So High?
We are all feeling the effects of rising energy prices at home and at work, it’s a global issue that’s been caused by some far-reaching and unexpected reasons. The conflict in Ukraine is currently having a huge impact on what was already a big problem with energy prices, but the following issues have also combined to inflate energy rates:
- Gas shortages across Europe, caused by a prolonged cold winter between 2020 and 2021, drained natural gas storage.
- High demand for liquefied natural gas (LNG) from Asia has led to lower LNG shipments to Europe.
- After first limiting its capacity to just 20%, Russia has now completely closed the Nord Stream 1 pipeline, causing a European supply shortage that's pushing up prices.
- The postponement of the Nord Stream 2 pipeline, which is an $11 billion link across the Baltic Sea with the capacity to send 55 billion cubic metres of gas a year directly from Russia to Europe, bypassing Ukraine. Although the pipeline is complete, Germany stopped it from going live in response to the Russian invasion.
- An increase in demand as lockdown restrictions eased across the globe.
- Lower renewable energy generation - Low winds, coupled with outages at some nuclear power stations, means that a higher percentage of our electricity generation is using gas during its production. If you're on a green energy deal that provides 100% renewable electricity, you'll still see your rates increase. This is because the way the UK energy system works means that the price of renewable energy is tied to the price of gas - if gas prices go up, so do renewable energy prices.
- Fire at a National Grid site in Kent - This knocked out a power cable that runs between England and France and is used to import electricity from the continent. This isn’t expected to be fully back up and running until 2023.
- Low gas reserves - The UK has some of the lowest gas reserves in Europe, which means there’s almost no way of stockpiling gas to use it when needed. Capacity is equivalent to roughly 2% of the UK’s annual demand, compared with 25% for other European countries and as much as 37% in Europe’s four largest storage holders.
- Insufficient government support - Although the government's £15 billion support package will see households credited with £400 over six months from October, this won't have as big an impact as measures taken in other European countries. France, for instance, has capped electricity price increases to 4% until the end of the year.
- Issues with the energy market - 28 UK energy suppliers have gone bust since 2021. This is largely down to many of them having a business model that couldn't cope with an increase in wholesale prices. And when suppliers go bust, consumers help to absorb the cost through higher bills.
