UK 'critically vulnerable' to another energy price crisis

There can be few in the UK who haven’t felt the blow of the energy crisis, triggered in 2022 by Russia’s invasion of Ukraine. That year, the International Monetary Fund calculated that the crisis was hitting UK household budgets harder than any country in western Europe.

Also in 2022, according to one study, a third of Scottish households were in fuel poverty, paying more than 10 percent of their income towards energy, many of them plunged there by that crisis.

Its impact is still felt. And, though prices have fallen since early 2023, typical bills under the current price cap will still be 40% higher than in winter 2021/22. 

Meanwhile the risk of energy crisis has not gone away. 

Today, the Energy Crisis Commission (ECC) issued a report that said that heavy reliance on gas for both heating and power is leaving the UK “critically vulnerable” to price spikes. It described how the UK, since it is so heavily reliant on gas for electricity and home heating, is dangerously under-prepared for, and at risk of another energy crisis. 

The analysis found that British households and businesses were hit harder than those in many other European countries because of high dependence on gas for heating and power generation. The UK, it said, when ranked against EU countries, is “second most dependent on gas for heating, and fifth most dependent on gas for electricity”. 

According to the ECC, we the household billpayers, have been paying the price for the slow pace of change in both reforming and transitioning the energy system and improving energy efficiency of housing. 

Among the issues, it says, are “poorly-targeted support schemes and the slow pace of improving home energy efficiency”, which have meant that the “poorest households suffered, and pushed up the overall cost of the crisis for the UK, driving up national debt”.

The result, for some households and businesses, has, it says, been “catastrophic”. “Nine in ten households cut back their energy use, the number of households in fuel poverty reached around 7.5 million, and GB households owe around £3.5 billion to energy companies.”

Almost one in ten firms, it noted, reported ceasing operations for some or all of their business in response to higher energy costs. 

These impacts can still be seen in Scotland, where, says Citizens Advice Scotland spokesperson, David Hilferty, “the emerging legacy is already clear: intractable and often unavoidable debt".

“On average, CAB debt clients have £2,600 of energy debt – that’s up from around half that level just a few years ago, and soars to over £3,000 in Scotland’s remote and rural communities.

“These levels of debt demonstrate the problem is rooted within markets, not with people. Because this winter, before a ball is kicked, the odds are stacked and for many people, it’s a game they just cannot win."

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The Commission has various recommendations. Among these are that the UK develop a clear strategy for shifting away from fossil fuels, increase public investment in home energy efficiency, introduce strengthened energy efficiency regulations, accelerate the rollout of electric heat pumps, and continue to accelerate progress towards clean power. 

But also, another policy recommendation stands out.

“Pursue electricity market reform urgently.”

It’s a refrain I hear frequently, mentioned at events and in conversations revolving around decarbonisation and heat pumps, as well as fuel poverty. 

High electricity prices make heat pumps less affordable

One aspect of the electricity market that not only drives fuel poverty but also disincentivises the shift to heat pumps and other clean heating, is the relatively high costs of electricity compared to gas in the UK.

Electricity prices are high in the UK because they are determined by the most expensive source required to meet demand, and, frequently it is set by gas. 

Earlier this year, an article by Nesta revealed that in the second half of 2023, electricity prices in the UK were more expensive than in any EU country, whereas gas prices were among the lowest. 

“This,” it said, “is due to the UK's reliance on gas power plants for balancing supply and demand. Put simply, when demand for electricity is high – such as when the sun sets and lights are turned on – gas-powered energy plants are used to supplement electricity generation when other forms, such as wind, are low or supply is otherwise disrupted."

How gas can be responsible for high electricity prices even when gas prices are low may seem puzzling, but can be attributed to the fact that, even when gas delivered to the consumer is low, the electricity generated by gas-fired power stations is high. High gas prices mean high electricity prices, but so, often, do low gas prices. 

Commenting on the ECC report, Robin Parker from Nesta Scotland said: “The energy crisis has shown what a vulnerability it is for Scotland to be so reliant on gas – but it needn’t be this way. As we drive towards net zero and transition away from gas to technology such as heat pumps to heat our homes, we can instead rely on an abundance of home-grown renewable energy. 

"The UK Government should prioritise making policy changes to make electricity cheaper. With reforms, and with a roll out of heat pumps into homes across Scotland, households would see lower bills from clean and secure energy sources.”

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But it’s not only the UK Government that can drive this forward. The Scottish Government and its Heat in Buildings Bill are key to accelerating the shift, and the bill is in  the programme for government for this parliamentary. Energy and fuel poverty campaigners would like to see it passes as soon as possible and have been calling for it to be introduced this autumn. 

The UK Climate Change Commission, too, recommended the Scottish Government move forward with the bill without delay. If implemented, it said,  “the strong proposals in the Heat in Buildings consultation could act as a template for the rest of the UK.”

But without electricity market reform, the financial incentive will still not be there - and it’s over to Westminster to sort that out.