Energy is a resource that is necessary to any business establishment. Gas and electricity are the primary sources of business operations in the UK.
Energy is a necessary tool for manufacturing and production in different industries. Without these sources, businesses will have problems with their day-to-day activities.
According to a CNN Business analyst, the United Kingdom has higher energy prices than other countries like France and Italy. Consequently, the Office for National Statistics said that this year’s consumer price inflation for electricity and gas increased by around 80% in the UK.
The increasing trend of business energy makes it hard for businesses to earn profit. So, should I fix my energy until 2023? The short answer is yes. Energy-related problems become more overwhelming. You can get a source of cheaper energy prices and tariffs when by working out your business energy.
Businesses can lower their consumption, but it might paralyze their operations. Your business can do several ways to work out in a competitive energy market. First, by knowing the reason why energy prices are rising in the UK:
Shortage in renewable energy generation
Renewable energy is an essential source of energy generation in the UK. The prices of gas that is necessary for generation are increasing. Thus, this makes it hard for power plants to generate more energy the way they used to. Though the UK energy market is inviting more green energies, the prices are still higher. If the prices of gas in the market go up, the prices of renewable resources also go up.
The increasing import cost of gas
The UK has been a long importer of gas. The wholesale prices of energy increase because of the high cost of importable gas. A war also breakout between Ukraine and Russia. The United Kingdom imports gas from Russia, which lowers its exports due to technical problems. Thus, a restriction in the supply impaired the gas imports of the UK.
Further, according to statistics, the UK exports most of its gas reserves. So, the UK is risking its physical security of gas supply.
Gas and electricity formulation of bills
Gas bills and reforms directly affect the prices of gas and electricity in the market. The UK energy market’s goal is toward a more sustainable energy resource. You can incur an additional cost when doing green, as its generation costs are higher. In addition, the tax levy on gas and electricity results in higher energy prices.
Issues within the energy market
A high energy market price is due to the closure of energy suppliers in the UK. Since 2021, 31 energy companies ceased trading due to increasing wholesale gas prices. These companies failed to cope and have gone busted. Natural gas prices rose over 300 per cent over time. Due to this current crisis and issues within the energy market, prices are far from going down anytime soon.
The cost of energy distribution has gone up.
The cost of delivering energy has gone up. Many energy suppliers and retailers came out unprepared for the increasing gas prices. The companies cannot work on a high gas price along with the increase in prices of distribution costs. Due to this, the supply of energy from these suppliers decreases significantly.
You can incur an additional cost for the construction, maintenance, and repair of damaged energy systems. The damage may be due to catastrophes and extreme weather conditions. The operational cost of energy suppliers also adds up to the cost of the distribution system.
Additionally, a fire broke down at a National Grid site in Kent, which supplies electricity in the UK. It is one of the primary electricity import cables in Britain. The construction and reparation of the plant might end in 2023. Thus, energy prices have gone up significantly.
Low gas reserves
Despite being one of the significant energy users in the world, the UK has some of the lowest gas reserves in all of Europe. Gas reserves are necessary as they determine the energy supply within the UK. However, in the UK’s case, its energy demand is higher than its capacity to store reserves.
The low gas reserves are due to the closure of big storage plants that supply the UK. In numbers, the UK has enough gas reserves to last for four to five winters, or only one per cent of Europe’s total available storage. Compared to countries like the Netherlands and Germany, the UK is vulnerable to a shortage.
Not enough government support
The UK’s government allocated a £15 billion support package due to the price cap increase of oil and gas. However, this value is not enough to subsidies the continuous soaring in energy prices.
According to Minister for Social Justice Jane Hutt, the UK is facing a shocking fall in living standards. Unfortunately, the UK’s government fails to acknowledge the energy issues. The need to allocate an emergency budget is essential to support consumers in increasing energy prices. Freezing gas and electricity prices is also necessary to minimize the effect of high energy prices in the UK.
In countries like France, the energy price cap went up to 4% in 2022. Thus, the government’s support is necessary to help the energy prices go down.
Increase in the price cap set by Ofgem
The Office of Gas and Electricity Markets announced an increase in its energy price cap to £3,549 per year for an average household. Ofgem, as the regulator of energy in the UK, believes the increase is necessary due to price increases in the global wholesale gas market.
The increase results in a massive impact and additional burden on energy consumers in the UK. Though the market prices for energy are volatile, the projection is worse through 2023. Consumers will have no choice but to buy and consume energy despite the high prices. The increase in price cap is an inevitable result of several factors. These include the limited supply and shortage in energy reserves.
Some analyst even projects the price cap to increase to £4,200 by January 2023. The unpredictable energy global market is so unstable. Unfortunately, the United Kingdom will have to suffer the consequences of this volatility in the market.