Why Are Our Energy Bills Skyrocketing?

The price of each unit of energy is going up from October 1.
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Rising energy bills have households across the country fearing for the winter.

Many will be pushed into fuel poverty, forced to choose between heating and eating, inflation could soar from its current high of 9.9% to over 18%, according to previous predictions from Citi investment bank – making the cost of living even higher.

Prime minister Liz Truss has attempted to ease the strain on households by freezing the typical household energy bills (depending on usage and property type) at around £2,500 per year.

But what caused this crisis gripping Europe in the first place?

We get a more than a third of our electricity from natural gas and 85% of UK homes use gas for central heating. But, wholesale gas prices are around ten times more expensive than they were last year.

Here’s why.

Energy price cap latest forecasts
PA GraphicsPress Association Images
Energy price cap latest forecasts

Ukraine war

Russian president Vladimir Putin’s invasion of Ukraine in February has rocked the global energy market, as Russia provides a large portion (40% in 2021) of natural gas to Europe.

Now that Ukraine’s allies are trying to punish Russia for its aggression against its European neighbour, different governments are trying to wean itself off Moscow’s exports.

However, that means there is a squeeze on all the other sources of natural gas, as European countries have to share resources outside of Russia, driving the price up.

Russia has also been accused of sabotaging its own pipelines sending natural gas to Germany (Nord Stream 1 and 2), further disrupting the energy supply.

Shortage of gas storage

Harsher winters have drained our gas supplies, and a key storage facility belonging to Centrica closed back in 2017.

Shadow energy minister Ed Miliband said this alone left the UK with “close to zero storage stocks” – leaving it particularly vulnerable to fluctuations in the market, as we are now seeing.

A Labour spokesperson also told the Telegraph: “All other European countries have been filling their storage over the summer to prepare for the critical winter to come, but Tory decisions over the last 12 years have left us insecure and families exposed to higher bills.”

For comparison, Germany has been able to increase their gas supplies to 80% over the last few months, and is expected to reach 85% in October.

Increased demand due to weather

Extreme weather (such as this summer’s heatwaves) have led to an increase in air conditioning and refrigeration demands. The winter of 2021 also left gas supplies depleted in the UK, as people turned to their electricity supplies for heating.

Asia and Europe had a long and difficult winter last year, which used up significant amounts of gas, again pushing prices further up.

The Office for National Statistics (ONS) said that in 2020, 35% of the UK’s electricity generation came from gas, while the rest comes from renewable sources. However, because many of these depend on the weather, Britain often falls back on its gas supplies.

Reopening of economies after Covid

During the pandemic, so many industries closed down that the demand for energy (particularly in the UK) fell.

But, after several lockdowns, the reopening of economies around the world saw a sharp spike in energy usage – again, depleting the supplies.

The sudden shift in the demand for energy as Covid restrictions eased triggered 28 energy providers to go under.

Customers from these bust providers have moved to other suppliers and the companies with increased client lists started to increase the admin costs of the transfer to consumers.

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