After months of uncertainty and worry, It was discovered that the energy bills for the typical household across the UK would rise by PS693 in the year ahead. An astronomical rise was because gas prices at wholesale jumped approximately 300% more than the price at the beginning of 2021. These are historical highs that have never been seen before the UK.
As with many other issues that face society today at the start of 2022, the impact of COVID will never be far from our minds. Since household energy costs include green levies and taxes, The main reason behind the recent rise in gasoline prices is the fluctuation in demand and supply.
In simple terms, the lack of locking downs and social restrictions during the last two years in which many sectors and events were made to cease operations resulted in a drop in energy demand as demand dipped, as did the supply.
As restrictions eased, the energy demand soared. Particularly the travel and hospitality sectors saw a rebound that led to a rapid increase in the market for electricity.
It isn’t easy to boost supply abruptly to meet an increase in demand, and prices jump.
The gas supply market has been increasingly complicated over the last few years. This is partially due to issues and the desire to lessen dependence on fossil fuels and switch to renewable energy sources to fulfill climate change goals.
This shift, which is a deliberate move towards hydrocarbons instead of renewable sources such as biofuels, wind, or solar, will make it difficult for gas providers to forecast the market’s needs. In the third quarter of 2021,, for instance, the UK produced about a 38percent of its power through renewable sources. This was lower than the 2020 figure because of significantly less wind.
However, most of the UK’s electricity generation is still derived via fossil-fuel sources. For at least the next ten years, gas will be an essential component of the energy policy in the United Kingdom. Today more than ever before and at an expensive cost.
Moving towards renewable energy
In the past, most of the UK’s energy supply was sourced domestically within the North Sea, but that has been declining since the beginning of the 21st century. One reason is that those remaining UK petroleum and gas fields are tiny and scattered across the North Sea.
Therefore, every time an energy source has been exhausted, the company must evaluate the potential to begin extraction from a different start. However, these sources are getting harder to access costlier for extraction, making them less competitive.
There’s an ebb in the market for licenses to develop new fields in response to climate change. The problem lies in the fact that the UK will not be self-sufficient with renewable energy for a long time.
It’s currently heavily dependent on foreign energy sources, specifically Norway, with its substantial gas reserves and is close to the coast, which helps reduce transport costs.
However, it is in the best interest of gas exporters all over the globe to maintain prices at a high level to maximize profits, and so they’ve been slow in increasing production. (In the same manner, Opec (the Organisation of the Petroleum Exporting Countries) has slowed oil production to ensure price levels.)
Another supply issue is the gas price cap set by the UK government in the year 2019. This resulted in a variety of suppliers crashing when the cost of wholesale gas increased above the cap and slowed competition in the market. Even though the cap level was changed to a higher amount this year, it could still indicate that suppliers’ prices are less than market rates.
This means that it is implausible that UK consumers will see any significant reduction in their energy costs anytime shortly, given that demand continues to grow. While it depends on the international supply and demand, the current challenges may continue.
However, in the long run, there’s some hope in the government’s promise to decarbonize electricity generation by 2035, which will result in a rapid rise in the production of renewable energy. Current prices for fossil fuels can and should serve as a motivator to invest more in renewable energy sources. This could help to reduce the challenges of supply, at the same time guaranteeing energy security as well as an ongoing reduction in costs.