Energy and gas prices have been rising for years. Some say this is because energy systems are expensive and complex, and the government has made it that way. For example, the UK government invested in renewable energy sources.
Yet, those investments increase consumers’ electricity bills because they do not pay for them. Even worse, these same policies also increase gas prices because they import less gas from other countries.
But renewable energy investments aren’t the only cause for higher energy bills. There are several other factors that have caused it.
First, let’s examine why renewable energy prices are high.
Renewable Energy Prices Are Expensive
If you have 100% renewable energy, you may wonder why prices are increasing — even though we don’t use gas to generate it.
It’s because of how the UK’s energy system works. Given that the UK heavily invests in renewable energy, the country still relies on fossil fuels to generate electricity. And that's where the pricing issues come into play.
The UK's energy system uses the “marginal cost” principle. In other words, this system uses the most expensive energy to set the price for all different types of energy, including renewables.
And since the energy prices have increased, so has the price for renewable energy, such as wind and solar power.
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Why Are Energy Prices Increasing?
Wholesale energy prices have risen due to supply and demand issues around the globe. And because these issues are causing a spike in wholesale prices, we see a rise in energy costs.
Although the UK is feeling the effects of the 450% rise in energy prices, this is a global issue caused by unforeseen circumstances. For instance, the Russia-Ukraine conflict is largely impacting what is already a huge problem with energy prices.
However, these are the following reasons why energy rates are inflating:
- Supply shortage: There are gas shortages throughout Europe due to low reserves of gas storage.
- High demand: Europe is currently dealing with lower imports of natural gas because there is a high demand for it from Asia. Additionally, life after the COVID-19 pandemic lockdown has increased the demand for gas and electricity.
- The Nord Stream 1 closure: This large pipeline transports gas from Russia to Germany. But due to its closure, the amount of gas has been reduced — affecting all of Europe.
Why Is the UK More Particularly Affected?
The energy crisis is affecting everyone. But the UK is particularly affected by it for various reasons, including the following issues below:
- Low gas reserves: The UK’s stockpile of gas is critically low, and there’s no way for the country to use it when needed.
- Insufficient government support: The government’s support package will give credit to households over the next two years, but the £2500 per year is not enough to make a big impact.
- Lower renewable energy: Low winds and power outages have increased the use of gas during energy production. With renewable energy being tied to gas prices, the increase in costs has increased renewable prices.
- Energy market issues: With the energy supply being low in the UK, the wholesale prices have gone up — which is why UK citizens see higher bills.
Will Energy Prices Go Down In 2023?
It isn’t easy to predict when energy prices will go down. Because the market is so volatile, it’s hard to say when the UK will start to see a decline in its energy bills.
However, due to the trend we’ve seen in rising prices — it’s likely to continue rising over the next year. And even though the government backs the Energy Price Guarantee, it’s unclear what will happen when it ends in October 2024.
The Rise in UK Energy Bills
Despite the UK becoming greener and more environmentally friendly, their energy bills haven’t gone down. Between the energy crisis and higher costs of renewable energy, it's unlikely they’ll see the prices drop anytime soon.
2023 may be another difficult year for UK citizens. Therefore, the government will need to find a way to minimize its costs. Until then, we can assume household spending will rise with the increase in demand for fuel and spending.
by Jane Marsh
