Gas crisis, price crisis, climate crisis
This article first appeared in Utility Week
Gas prices had already been increasing to unprecedented levels even before Russia’s invasion of the Ukraine, and were almost four times higher than they were in early 2021. Dependence on gas in general and on Russian supply in particular will further increase pressure on prices globally. We have already seen the almost immediate impact from sanctions and announcements of withdrawal from the market, with gas prices reaching an all time peak of 650 pence per therm on 7 March 2022.
While the UK is less dependent on Russian gas than some of our European neighbours, even assuming the wholesale markets settle down and prices soften, the net effect of ongoing sanctions will be significant for global supply chains – not only for energy but for commodities, by reshaping who buys what from whom on a global scale.
That means security of supply is now firmly on the political agenda and on consumers’ minds and all options are now being considered. The most immediate, quickest fix might be to slow the transition away from gas and delay planned plant closures. There’s speculation that mothballed coal plants could come back online too. This has been on the agenda in the UK, and there is speculation Italy may do so, to end its reliance on Russian supplies. Calls to remove barriers and speed up the process for getting renewable generation online provide the other side of the argument with many concerned that only months after COP26, there could be a softening of the drive to decarbonise the sector. Octopus Energy, for example, has called on government to speed up wind power developments and help accelerate the heat pump rollout in response to the crisis.
The reality is that there has been a long-standing need to balance affordability, decarbonisation and security of supply over the last decade and, until now, it has been possible to provide consumers with more choice and reductions in bills. It has also helped the country make huge strides in decarbonising our generation fleet but less attention has been paid to security of supply. And those vulnerabilities are now becoming all too apparent. However, it is vital not to retreat too far on decarbonisation as a short term fix for price increases, but instead use these pressures to refocus on cutting red tape, speeding up connection processes, and calming any investor jitters by restating the policy commitment to renewables. This is a more sustainable response but will need government and industry to hold its nerve. Doubling down on renewables is far from a quick fix particularly as global commodity prices, including raw materials needed for batteries, solar panels, and wind turbines will also be subject to price increases - reversing a trend of downwards costs.
As well as large scale renewable generation, part of the solution to climate change often put forward is more energy independence, control and participation by energy consumers. More self-generation and less dependence on large scale coal and gas generation means more individual security of supply. However, this idea has struggled to gain real world traction and commercial scale. This is because the alternatives to buying your gas and electricity in the traditional way are too expensive; and most customers simply don’t care enough about their energy to spend the time putting together their own clean energy solutions. The current increases in prices though are providing a very different perspective on both arguments and mean energy will be at the top of the list of priorities for individuals or businesses.
Equally, given the huge instability around pricing, it is unclear whether and how far the fiscal rules will allow government to give further financial support to consumers. That makes the business case for making, storing and using your own electricity to reduce dependency on the grid and have more control over how much you pay much more attractive.
At the same time, over the last two decades costs for PV, turbines, and batteries have all fallen steeply, and while heat pumps haven’t been through the same curve yet, the benefit of shifting away from gas to all electric heating now looks more economically viable. This downward trend in prices may slow in the face of current supply chain pressures but neither security of supply nor the energy transition is less of a necessity.
All this means that the current crisis can cut through these longstanding barriers to decarbonisation. The climate crisis has come home to roost and the real instability and cost of the old (carbon intensive) world has become all too apparent.
What the energy sector should do in response is to think again, and fast, about how to lift barriers to accelerating the energy transition. As a nation we have learned from COVID that we can radically change our thinking and our speed of response in the face of a crisis. With the right people focussed on the task, we can take inefficiency out of the current process for getting renewables online and make connection processes faster and the system more flexible. We could then create new models for homes and businesses which would mean we tackle this crisis in a way that drives us forward on climate change, rather than slows us down.