What are the main factors that have driven the energy crisis, and what does the future hold for the market following the Prime Minister’s energy announcement?

Following the announcement of an Energy Support package by the Prime Minister this week, we thought it would be timely to recap on the global energy crisis which continues to have to huge implications for UK consumers and businesses. In this guide, we revisit the driving factors behind the energy crisis and discuss what the future holds, including how the Government’s Energy Support package could benefit your business.

Cause 1: Geopolitical Landscape

The energy crisis is largely due a significant supply issue across Europe and the world. Limits with energy supply have been created in part by geographical and political issues – specifically the relationship between Russia, Europe and energy supply.

This is an is interesting, albeit complex topic but, in short, Russia has a vast geographical reach and due to its geology is an energy superpower. In March 2022, Russia invaded Ukraine which has had a huge impact on the cost of energy, due to the limitations on supply of natural gas and oil to the West. While the UK only imported 4% of its natural gas supply from Russia in 2020, Europe as a whole imported 39% from Russia in 2021[1], and have been hugely reliant on Russian supply historically.

The Sanctions that have been imposed have caused a great deal of difficulty for European countries that were dependant on Russian supply, who have in turn had to move to alternative sources for their energy. This has put higher demand on alternative sources of natural gas, such as from Norway, which has driven the cost up for all countries, including the UK.

Cause 2: Inflation

Inflation is currently sitting at 10.1% [Bank of England]. inflation rates and the cost of energy are closely aligned; when inflation increases, natural gas is one of the first commodities to increase in price. As inflation continues to rise, energy prices inevitably follow this trajectory.

Cause 3: Weather

The effects of climate change have had a significant role in the energy crisis – supplies are depleted, demand is increased and prices have risen. The combination of an exceptionally cold winter in 2021, plus reduced wind power generated earlier in 2022 added pressure onto a strained energy market. .

Add into the mix record breaking heat we have experienced this summer, with a higher energy demand through increased usage of air-conditioning for instance, and prices have soared further.

What does the future hold?

This week’s announcement by Prime Minister Liz Truss gives some hope to businesses navigating this unpredictable climate. Alongside domestic support measures, a new six-month scheme for businesses has been announced which will provide some protection against soaring energy costs.

While we are waiting for further detail regarding what support will look like, the Government has advised that support for vulnerable industries will be provided following this six month period. There will be a review in December 2022 to decide which industries are classed as ‘vulnerable’ for this additional support

While this will not solve the energy crisis, it will make a positive impact for many businesses, providing some short term certainty for business planning and forecasting. As more detail is released, the team at EES will keep you updated.

How can Experienced Energy Solutions help?

At EES, there are numerous ways we can support your business through the energy crisis, whether it be through our free Energy Health Check-up, securing the best pricing for your energy, or supporting you on your Net Zero journey to reduce your energy consumption. Please get in touch with our team to discuss how we may be able to support your business through this challenging time.

 

Published September 2022