The UK energy market crisis explained
As the UK has plunged into an unprecedented energy crisis with gas prices and energy bills rocketing, millions of people are worried about the difficult winter ahead.
Here, we explore what’s driving the issue and what this means for you.
What has triggered the energy market crisis?
Energy suppliers buy their gas and electricity wholesale, and it is then sold on to their customers. This means price fluctuations can happen, as is generally the case in any market.
However, the UK’s wholesale energy prices have reached new all-time highs lately, increasing by a staggering 250% since January and 70% since August alone. The increase is due to a combination of factors, principally the ramp-up of the world’s economies post Covid-19, causing a global surge in demand for gas.
Other contributing factors have been a cold winter that left gas storage facilities depleted and the fact that Europe’s own natural gas supply has also been falling over the last decade. According to the BP Statistical Review of World Energy, Norway, one of the continent’s biggest producers, has seen its own production fall four years in a row.
Renewable energy production via wind generation has also fallen across the board due to this summer being one of the least windy since 1961. This particularly impacts the UK, where wind generation is the second-largest domestic source of electricity. This slowdown in wind energy has caused the UK to fall back on electricity generated by power plants, some of which burn gas.
What does it mean for our energy bills?
Wholesale energy costs make up about 40% of household bills, meaning energy companies are pressured to increase consumer prices when their costs soar. Despite the spike in costs for the companies, consumers are protected by the energy price cap set by the energy regulator Ofgem.
In response to the global rise in gas prices, the cap is set to rise by £139 per year – for households on a standard tariff with typical energy usage – while customers who use prepayment meters will see a £153 rise. This will affect around 15 million homes in England, Wales and Scotland, representing a 12% rise in energy prices.
However, the increase still may not be enough for some energy companies to cover their costs. Since August, a few small energy suppliers have gone bust and there are fears that many more companies may not survive the winter. Data from Ofgem shows that the number of energy providers in the UK has declined by a third since mid-2018.
Currently, customers whose suppliers in the UK go bust are automatically transferred to another supplier and tariff by Ofgem.
What can we do to make our homes more energy-efficient?
As millions of households across the country face a spike in their energy bills, it is undeniable that this will be a very challenging winter for many. The current energy market crisis shows why we must reduce our dependence on fossil fuels and continue the transition to net zero.
The crisis also underlines the need to make our homes more energy-efficient, allowing us to considerably save on our energy bills while reducing our carbon footprint.
Adding solar panels and battery storage
Among the most common ways to make our home more energy-efficient are solar panels, which produce 100% green energy. To further maximise the benefits of your solar PV, you can also add battery storage.
Instead of switching back to traditional energy suppliers, you can use the energy stored during the day within the solar battery, when the sun goes down. The excess energy your home is not currently using goes into charging your battery, so instead of sending the electricity back to the grid, you can store it and power your home with clean and self generated energy.
GridShare’s smart optimisation
In addition to simply storing the excess energy your home is not currently using, your battery’s behaviour is also optimised by Moixa’s GridShare software. This AI-driven platform identifies your household’s solar generation and consumption patterns alongside weather forecast data and your import and export tariffs. Based on these inputs, GridShare generates a personalised daily charging plan, which is optimised to cover your home’s electricity needs using the greatest amount of solar and low-cost grid energy available.
If you are on a time-of-use tariff, GridShare will combine it with solar generation and consumption predictions to create an optimal charging plan for your battery. Capitalising on your time-of-use tariff with GridShare is particularly beneficial over winter months when less solar is available. You can store energy from the grid when the wholesale prices and carbon intensity are low, so you can use it at peak times to maximise your monetary savings and be prepared for any future spikes in energy prices.