Report: Soaring fossil fuel costs driving rise in UK power prices
Skyrocketing global fossil gas costs underscore urgent need to ramp up renewables capacity in UK, according to Ember
The UK energy system is currently reeling from a perfect storm of market forces that has caused energy prices to soar, with major ramifications for domestic consumer bills, energy suppliers, beverage manufacturers and even the meat industry.
But as analysis today from Ember shows, the UK’s reliance on fossil gas for power generation is largely the cause of surging electricity bills, with soaring global fossil fuel gas costs accountable for 86 per cent of UK electricity price increases in recent months, it estimates.
Meanwhile, the cost of generating power from new onshore wind, offshore wind and solar is already cheaper than from existing gas power plants, according to the think tank, which argued the current crisis therefore demonstrated the need to accelerate the shift from fossil fuels to renewable energy sources.
“The soaring cost of imported fossil gas is driving up electricity prices in the UK,” said Sarah Brown, senior electricity analyst at Ember. “A more rapid and committed transition to clean electricity is the only way to avoid the volatility of fossil fuels.”
UK power prices have tripled year-on-year from £36 per megawatt hour in August 2020 £107/MWh last month, marking a huge hike of £71, according to the think tank. At the same time, gas costs for electricity rose by £61/MWh over the same period, thanks to a combination of global factors such as depleted fossil gas storage levels, rising demand as Covid-19 restrictions lift in many regions, and Europe struggling to secure requisite imports from Russia, Ukraine and Asia to meet demand.
The situation has plunged the UK energy system into crisis, with a number of smaller energy suppliers at risk of going bust, poorer households facing higher bills, and industries that rely on CO2 such as meat and beverage suppliers forced to pair back production or shut down altogether, heightening the risk of empty shelves in supermarkets this autumn.
At the same time, the costs of carbon allowances for gas power rose only £9/MWh between August 2020 and last month, according to Ember, further underscoring that the UK’s reliance on fossil gas for energy and other applications – rather than climate policy – is to blame for the current crisis, it argued.
The UK’s reliance on gas power – which last year accounted for 37 per cent of the UK electricity mix – not only threatens the country’s energy security by partly relying on imports of gas, but is also causing electricity bills to skyrocket “when people can least afford it”, Ember said.
Meanwhile, Ember’s analysis found it is now cheaper to generate electricity from new wind and solar than even existing gas fired power plants in the UK. Generating power from existing UK gas plants is three times more expensive than from new onshore wind farms, and almost twice as expensive as from new solar projects, while even new offshore wind power is cheaper, it said.
As such, Ember warned that, with the current trend of escalating gas prices set to continue as winter approaches, the need to accelerate the shift away from fossil fuels to renewable electricity is now increasingly urgent.
“The only way to avoid the volatility of fossil gas is to accelerate the transition to clean electricity,” Ember’s report states. “Wind and solar are not exposed to variable fuel costs.”
Business Secretary and former Energy Minister Kwasi Kwarteng – who has been meeting with industries affected by the current gas supply crisis, as well as the energy regulator Ofgem – has insisted the security of supply in the UK is “not a cause of immediate concern”, arguing the UK benefits from a “diverse range of gas supply sources, with sufficient capacity more to more than meet demand”.
And, in several statements this week, Kwarteng has also argued that the current situation demonstrates the need to build out further capacity for renewable power in the UK in order to reduce dependence on gas imports, which could risk security of supply in future.
“Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels,” Kwarteng wrote on Twitter over the weekend. “Renewable energy has quadrupled since 2010, but there is more to do.”
