16 February 2023
The global energy crisis has emerged as one of the key disruptors of the past two years, leaving individuals and businesses facing higher-than-expected bills and the threat of energy shortages. But how did we get here? And what does the future hold?
Crises rarely form in a vacuum. They’re the product of a host of contributing factors, triggered by external events that damage certainty and offset the status quo. Such is the case with the present energy emergency, which came about through a succession of issues and problems that were impossible to predict.
That’s the past, but what about the future? To predict that, it’s necessary to examine the events that shaped the present situation.
So, that’s what we’ve done, piecing together a timeline of events which contributed to the energy crisis, before setting out what we believe the next 12 months might bring for our business energy customers.
As a result of the Brexit transition, the UK Emissions Trading Scheme (UK ETS) replaces the UK’s participation in the EU ETS, resulting in price volatility and market uncertainty.
A colder-than-average winter in 2021 also led to an increase in energy demand in some areas of Europe.
Low wind speeds across Europe during this period affect the UK’s proportion of wind generation, which is much higher than that of most of mainland Europe.
With the world emerging from a post-Covid slump after nearly two years of a record-level low in gas prices, the rapid economic rebound saw prices begin to soar. With industries like travel and hospitality requiring more energy at a similar period, demand outstrips supply and causes energy prices to rise rapidly.
The huge increase in gas prices forces some energy suppliers in the UK to go out of business. By the end of December 2021, 28 energy companies close their doors, affecting over two million customers.
All told, gas prices in the UK more than quadruple during this period to 180 pence per therm. In September alone, the price of gas rocketed by 70%.
A fire at the IFA1 interconnector – a high-voltage cable used to import electricity from France – causes a full outage. Capacity reduces, and the interconnector is expected to function at a reduced capacity until late 2022.
The conflict between Russia and Ukraine causes further difficulties with the UK’s energy supply. Although the UK does not directly import its gas from Russia, many countries reduce or end their gas imports from the latter, causing a scarcity of available gas as a result.
The EU introduces regulations for energy storage, requiring all member states to fill in at least 80% of their storage capacity by November 2022. This is intended as a safeguard to ensure countries have energy reserves to survive winter 2022/23, but it does place significant demand on energy supplies – the impact of which contributes to market volatility for the remainder of 2022.
Russia reduces natural gas flows through Nord Stream, with supply running at 40% capacity in June 2022. Flow is reduced further in July, before being shut down fully in August.
Following an explosion and a fire, Freeport LNG is forced to close its 15 million-tonne-per-year plant in Quintana, Texas.
October 2022 proves a pivotal year in the ongoing energy crisis, with the launch of the energy price cap for domestic users.
Meanwhile, to support businesses with their energy bills, the government launches the Energy Bill Relief Scheme. The EBRS provides discounted energy rates for business consumers for six months from 1 October 2022 to 31 March 2023.
Energy regulator Ofgem announces its price cap is set to rise to an annual level of £4,279 in January 2023.
The UK government announces a new scheme to replace the EBRS, which will come into effect from 1 April 2023. These changes, outlined in full here, will see a shift in how energy discounts are applied and the value of those discounts.
So, what does the future of the energy crisis look like? And, more importantly, when can energy users expect a return to normality?
Unfortunately, we’re not quite out of the woods yet, with many in the industry predicting that the energy crisis won’t let up until 2024.
First, the bad news. It’s predicted that we’ll still be facing similar issues this time next winter, with the market expected to reach a “new normal” in mid 2023 – meaning high prices becoming the norm across the country.
Even so, prices are set to remain volatile for a long time, especially if the UK continues to rely on imports – which is likely until we become more self-sufficient with our energy supply.
As such, the view is that we’ll be well into 2024 before energy prices start to come down.
There are some positives to speak of, however. As more sustainable products make their way into the market, and new sources of gas are utilised, prices should start to stabilise.
And that’s seemingly what’s been going on as of late. Dirty coal and clean renewables have been used to substitute gas in electricity generation.
Elsewhere, it’s been reported that across the EU between March and September, there was a record year-on-year increase in solar and wind electricity generation. This is reflected in official EU energy consumption figures for October and November 2022, which show a 24% reduction in natural gas consumption compared to the five-year average.
For businesses specifically, news of changes to the EBRS (announced on 9 January) will no doubt have raised concerns. But the good news is that the end of the EBRS is not the end of energy relief altogether.
EBRS will be replaced with the newly announced Energy Bills Discount Scheme (EBDS), a more scaled-back version of its predecessor, from 1 April 2023. You can find all the need-to-know details about the new scheme in our complete guide here.
With the energy market unlikely to change for the foreseeable, businesses are encouraged to do what they can to keep their energy costs as low as possible. Further measures to consider include:
The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of SEFE Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. SEFE Energy accepts no liability for any errors, omissions or representations.