Annual Energy Forecast Report

This report will be explaining the following

1. What energy crisis are we currently facing?
2. where did it come from?
3. How long will it last?
4. What is the UK government doing to tackle this problem?
5. Summary and recommendations

 

What energy crisis are we currently facing?

To be able to fully understand where this all started, we will have to go back to when the corona virus first effected the energy market in 2020.  If you wish to know this in detail, we would recommend you watch our video which was published in 2020 or read the 2020 -2021 Energy Forecast.

From the aftermath of these events from 19th November 2021 (Ofgem, 2022) there had stated unprecedented rises in gas and electric prices . As demand for energy is back to high levels, this had caused increased prices which is partly due to our dependency in foreign distribution networks.  

Where did it come from?

Within the industrial age which was from the mid 1700’s to the earliest 19th century the UK was energy dependent with a sufficient supply of coal and natural gas from the north shields. However, as we transitioned into the information age, our economy began to outsource up to 60% of our energy supply from european countries.

Moreover, it had been declared as from 28th December 2021; concerns over gas exports to western Europe, along with suppliers going bust, due to being unable to keep up to wholesale prices(Ofgem,2022). This has also lead to energy consumers having a hard time getting onto the phone with customer services to help explain why their prices have increased (Guardian, 2022).

Within recent events the Russian invasion on Ukraine had directly led to higher oil, gas and wheat prices. This issue has also effected inflation rates which is due to be at its peak within the 4th quarter of 2022 (Parliament UK, 2022).

How long will it last?

Furthermore, in light of the war, European gas has soured more than 200%.  Domestic energy reports show consumers price caps have been expected to rise by April by 54% and further up by the end of the year october  (Guardian, 2022). With projects such as the Hinkley C power station not looking to be complete until 2026, study’s from various sources suggest prices will remain higher for the next 4 years (Robinson, M, 2022).

 

What is the government doing to tackle this problem?

The government have put in place measures such as £150 tax rebates from April, £150 warm home discount along with £200 off energy bills  for domestic properties. Whereas for business commercial properties they are in the process of possibly scrapping CCL costs from energy bills(Gov.UK, 2022).

These procedures were underpinned by the British energy security strategy; which was made to provide a plan for securing affordable and clean British energy for the long term(Gov,2022).

These plans are mainly highlighting reducing the British dependency in foreign sources of energy. This consists of introducing new nuclear reactors along with offshore wind investments of £100BN, which are ambitious projects looking to be introduced by 2030.

In spite of government projects; According to (BBC, 2022) Jet Fusion which was European funded project in Oxford , is making breakthrough’s in new energy sources. This technology has the potential to create mini stars with almost an unlimited supply, whereas this being brought into full effect would be sure to reduce prices of energy. However, this technology is only within its infant stages and is not going to be the solution to the current climate crisis.

Summary and recommendations

In conclusion the current energy crisis this has made higher prices which will be in place for at least 4 years which studies suggests (Robinson, M 2022).

Moreover, it is recommended for domestic properties to stay within the variable rates of the price caps as the unit rates cannot reach above a certain level, until the national supply chain has a better configuration in supply. 

Whereas commercial businesses are advised by experts to negotiate long term contracts to secure the costs for the future of their business and to avoid price increases in the short term (Richmond, D., 2022).

If your a business looking to secure long term energy contracts click here and we will be glad to provide assistance.

 

Bibliography  

 

BBC. 2022. Major breakthrough on nuclear fusion energy. [online] Available at: <https://www.youtube.com/watch?v=0fYiNVRmOA4> [Accessed 13 April 2022].

 

Guardian. 2022. Why is the UK facing an energy crisis and how do we cope with it?. [online] Available at: <https://www.theguardian.com/uk-news/2021/dec/28/why-is-the-uk-facing-an-energy-crisis-and-how-do-we-cope-with-it> [Accessed 10 April 2022].

GOV.UK. 2022. British energy security strategy. [online] Available at: <https://www.gov.uk/government/publications/british-energy-security-strategy/british-energy-security-strategy> [Accessed 13 April 2022].

GOV.UK. 2022. Future of the energy retail market: call for evidence. [online] Available at: <https://www.gov.uk/government/consultations/future-of-the-energy-retail-market-call-for-evidence>

[Accessed 10 April 2022].

 

Ofgem. 2022. Overview of 19th November 2021 Price Cap consultations. [online] Available at: <https://www.ofgem.gov.uk/publications/overview-19th-november-2021-price-cap-consultations> [Accessed 10 April 2022].

 

Ofgem. 2022. Wholesale market indicators. [online] Available at: <https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators> [Accessed 18 April 2022].

Parliament UK. 2022. Rising cost of living in the UK. [online] Available at: <https://commonslibrary.parliament.uk/research-briefings/cbp-9428/> [Accessed 13 April 2022].

Richmond, D., 2022. Businesses must reduce impact of energy prices. [online] Bradford Telegraph and Argus. Available at: <https://www.thetelegraphandargus.co.uk/news/20059341.businesses-must-reduce-impact-energy-prices/> [Accessed 12 April 2022].

 

Robinson, M., 2022. Four more years of energy bills agony for UK households. [online] Mail Online. Available at: <https://www.dailymail.co.uk/news/article-10683795/Four-years-energy-bills-agony-UK-households.html> [Accessed 13 April 2022].

the Guardian. 2022. UK energy suppliers’ customer service at ‘worst’ level since 2017. [online] Available at: <https://www.theguardian.com/business/2022/apr/08/uk-energy-suppliers-customer-service-at-worst-level-since-2017-citizens-advice-plummeting-standards> [Accessed 12 April 2022].

 

 

Within the mist of the pandemic the energy industry has seen volatility which has never been
witnessed before within the turn of the century. This has had a major adverse effects on commercial
businesses especially within the hospitality industry due to energy supplier’s uncertainty of the
Usage and their own fossil fuel production.

The best way to describe the problem energy
suppliers are having is through the Sale and
Return from business to client. In a Sale and
Return, Businesses have a quantity of a product
to offer at a viable wholesale price and the client
will sell the products to consumers within their
outlets. In a set period of time, the business will
then return to the client with the bill for the
product they gave the client to sell.

In an ideal situation the client will have sold the products without any quantity left, leaving the bill
to be paid to the business. However, within the current pandemic commercial businesses within the
hospitality sector are constantly being shut down and unfortunately have become clients who are
unable to effectively distribute the quantity being given to them by the energy suppliers.

This had led to major energy company’s such as British Gas raising the threshold for credit checks, along with
other company’s denying their cheaper energy deals to pubs bars and restaurants (The Telegraph
2021).

Due from the loss energy companies had since the shutdown of 2020, price rises are also due to
come as energy company’s look regain profits within their mass scale production of gas and electric
into the market. With Oil being a major benchmark for economic
activity and one of the most in demand commodities to produce
energy.

 The effects from the Corona Crash of April
2020 which shocked the market, had begun to settle from
June 2020 and increased from December 2020 (DailyFX.
2021). In conjunction to other factors, this had steered 5
major UK suppliers British Gas, EDF, Eon, Npower and Scottish
Power raising their price Cap for 2021 to domestic and
business consumers. According to (CBS 2020) this has also created devastating price wars between fossil fuel
companies, putting fossil fuels at a decline in
profitability to companies. On the bright side,
with the push from world economies moving
towards alternative methods of energy, energy
industries are growing to become more
productive from the use of renewable wind and
solar energy.

 

Within the past decade the
production of renewable energy has doubled
with a decreasing cost for development.
Moreover, with the pandemic being controlled within the coming of years and the efficiency of
renewable energy, economies have a possibility of energy prices becoming more affordable to
consumers. However, within the present situation energy consumers will find the ideal cost for
energy difficult to obtain.

 

References
The Telegraph. 2021. ‘Risky’ pubs and restaurants shunned by energy market. [ONLINE] Available
at: https://www.telegraph.co.uk/business/2020/05/03/risky-pubs-restaurants-shunned-energymarket/. [Accessed 18 March 2021]
DailyFX. 2021. Crude Oil Prices: Brent and WTI Price Chart, Forecast & News. [ONLINE] Available
at: https://www.dailyfx.com/crude-oil. [Accessed 18 March 2021].
CBS. (2020). Renewable energy industry booming despite struggling economy. [Online Video]. 26
September 2021. Available from: https://www.youtube.com/watch?v=kpgxbaTpZuE. [Accessed: 18
March

Weather out of a contract, into a new contract or already within an agreement with a supplier the lower prices which were previously available are now in the past.

Ever since then Political, Legal, Economic and environmental factors have derailed consumers buying power for energy commercially.

Starting from 2001 the UK Government introduced the Climate change Levy as an incentive to reduce carbon emissions, this in turn reflected on increased tax to non-domestic user’s energy bill. With the introduction to the Deregulation of energy within the same year this began over a decade of new supplier’s alongside British Gas bargaining customers with fixed and variable tariffs in return for loyalty for using their energy supply. This has now lead to 65% of businesses thinking that switching their energy supply is challenging. This will have been simplified by comparison websites however finding the right supplier with the right price, for the correct contract length to abstain from market volatility and price fluctuations has become more complicated.  

Within this summer according to Westcott, S. (2018) editor of the express times, there has been reports of price hikes from all the big 6 suppliers which has generated a 400M energy bill to consumers. This moreover raises the prices for consumers from as high as 5% for their annual billing which mean higher rates being introduced to their customers renewals and those who are on fixed rates .

With the UK’s departure from the European Union from the 29th of March 2019 according to Chapman, B (2018) editor of the independent, Lords say that the UK faces higher energy bills after Brexit. This is due to the UK trading outside the international energy market.

When article 50 is triggered this can also see Britain’s nuclear energy to a halt when leaving agreements with Eurotom; which regulates and promotes research for nuclear power. This source of energy is crucial for the demand of the UK’s power supply however Tom Greatex the Chief Executive of the nuclear industry association says there is allot to be done.

Reports from the guardian by Kollewe, J (2018) suggests that MP’s warn Britain’s supply is in jeopardy after Brexit. Members of the committee such as Ian Wright has recently mentioned the impact of leaving Eurotom have not been thought through. In relation cross party groups of MP’s said it will take more than 2 years to produce firm regulations for the energy supply, therefore next year is set up to become a volatile energy market. Unfortunately within this period this could leave Britain to also become the dumping ground for inefficient energy products as a result of improper measures taken.

The UK would have been a more stable market if there was more of an internal energy market for the country; such as in 2005 when the North Sea oil production generated cheap energy from coal. However it has been now found that energy imports are being relied on external markets from mainly Norway Qatar and Russian gas as mentioned from reports from Ambrose, J. (2018) editor of the Telegraph and Financial times.

Within the end of 2017 Environmental factors which impacted the energy market was a Russian gas hub explosion as Bloomberg reported injured over 21 people and killed at least one Wabl, M. (2018). This was also followed by a crack in the North Sea pipeline which resulted in the supply shortages in the demand of a winter period. This could have been maintained with internal energy products to safeguard against these issues, unfortunately the UK’s subsea storage site has been reportedly empty since last year and the North Sea oil production now struggles to meet the demand to supply energy to consumers.

As from February 2018, due to freezing temperatures national grid were not able to meet the demand for energy supplied to consumers as they were forced to pay industrial businesses to reduce consumption to compensate. Only from November 2017 to March 2018 economic and environmental effects has sent energy prices soaring forcing market prices with a 21% increase to the average UK market prices. 

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