It almost feels like an understatement to refer to what’s happening in the UK as an energy crisis.
At the end of the last northern winter, National Energy Action (NEA) estimated that the number of UK households in fuel poverty had increased from 4.5 million to 6.5 million in the preceding six months. Things have worsened since then and now they’re heading into another winter.
Research firm Auxilione estimated that, without a new plan to hold down prices, the average yearly bill for millions of UK households could have topped £5,700 (around $9,500) from next April, with bills for small businesses rising at an even faster rate.
Emergency action was needed
As part of a package of emergency measures, the government has just committed about $A250 billion (£150 billion) to support households and businesses – and compensate providers unable to recoup their costs due to a new cap on household bills.
On September 8, Prime Minister Liz Truss announced a new ‘Energy Price Guarantee’ to supersede the previously planned October price cap.
Under the scheme, which came into effect on 1 October, a typical household in England, Scotland, or Wales will pay up to an average of £2,500 (approximately $4,160) a year on their energy bill until 2024.
This is around £1,000 ($1,664) less than typical households would have paid per year if the October price cap had been implemented, and less than half of the Auxilione estimate.
But keep in mind this is expressed as an average household bill (to make it easier for people to understand). People who use less should pay less than that, while households using more energy than the ‘average’ will be paying more.
Consumers are taking drastic action, too
Last winter, vulnerable people died because they couldn’t afford heating. That’s the extreme impact of ‘fuel poverty’ in a cold climate.
A household is considered in fuel poverty if it has fallen into debt, cut back on other essentials to afford fuel, or has been forced to ration its heating to unhealthy levels.
Struggling households often resort to extreme coping strategies, such as heating only one room, wearing coats indoors, and using public places (libraries, for example) to stay warm.
So, yes, the term ‘crisis’ is definitely justified
How have things become so dire? It depends who you ask and, possibly, if you approach the question based on your established beliefs.
What most agree on is that the UK hasn’t done enough to build the necessary level of energy security – that appears self-evident now that they can’t get enough gas, due to global events.
Where we have a difference of opinions is mostly around the role renewable energy sources and the pursuit of a net-zero target are (and should be) playing.
One side says the UK has gone too hard toward net zero, while the other says it should have done more – and sooner. When you listen to what either side is saying, they both make convincing arguments, but as the debate goes back and forward fuel poverty looms closer for the average battler.
Going nuclear?
It’s pretty clear where former UKIP leader Nigel Farage sits. Back in March, he suggested that then-PM Boris Johnson encourage and incentivise energy companies to reinvest their profits in new oil and gas projects.
He has long argued that boosting domestic production is crucial to any hope of cheaper, more reliable, and secure energy.
The Brexit movement leader has mockingly called Johnson “the high priest of net zero” and pointed out that adding nuclear power to the mix wasn’t going to resolve the issue.
In the heat of debate, Farage even claimed that before this crisis is fixed “we may well have economically gone back to pre the Industrial Revolution because we won’t have any hot water, we won’t have any computers.”
A scary prediction of doom or frivolous scaremongering? We’d rather not find out!
The energy crisis is also impacting currency
The UK’s cost-of-living crisis is being driven by the energy crisis, and not simply because of the energy bills facing households and businesses.
Analysts and investors believe that the value of the euro will continue to struggle against the US dollar as Europe’s energy crisis deepens and causes recession risk to increase.
For context, the euro broke below the parity level (1.0000) against the US dollar in August and has struggled to hold on to gains since.
“The recent price action in EUR/USD hasn’t been driven by the widening of interest rate differentials between the Fed and the ECB, but rather by the widening price differential between European and US natural gas,” Piero Cingari, market analyst at Capital.com, explained.
Referring to Europe’s reliance on Russian oil and gas, Farage says:
“I suspect the pound’s in the same boat – I mean, look what’s going on in economics and global politics. It’s all about work and energy. The intelligent countries decided they’d be self-sufficient. But now there’s ‘follow the goddess Greta Thunberg’.
“They’ve decided ‘we won’t produce our own energy because that wouldn’t allow us to get to net zero. We’ll just bite off that nice Mr Putin’. So, I suspect that those currency moves are going to continue.”
Households themselves are part of the problem
A significant difference between the UK and Australia is that gas is the most common fuel used for heating, while those who are off the gas grid use fuels such as oil to heat their homes.
Regardless of where the energy comes from, one of the other big issues facing UK households is that many of them are far from energy efficient.
Mike Thornton, chief executive of the UK’s Energy Saving Trust, pointed that out in his response to Liz Truss’s recent announcement:
“The scale of the emergency measures announced today serves to further highlight the depth and breadth of the energy crisis,” Thornton said.
“We welcome the resolve to take immediate action to reduce costs and increase energy security for both the short and long term, whilst remaining committed to net zero carbon emissions by 2050.
“We also still need to see greater and more urgent investment in the roll out of energy efficiency measures across UK homes. A commitment that was notably absent from this announcement and is the fastest way to permanently reduce energy demand, cut costs and slash emissions whilst keeping people warm and safe. It must be made a much higher priority,” he added.
All for renewables
The Energy Saving Trust, like many others, comes from the opposite philosophical direction to Farage.
“We welcome the promised acceleration in deployment of renewable energy to help increase security of supply,” Thornton said.
“However, our continued over reliance on fossil fuels is the catalyst for high costs, energy insecurity and a warming planet. The commitment to further fossil fuel extraction is therefore concerning and a step in the wrong direction, it is not the solution to the problems we face.”
So, it seems that there’s only one thing that everyone agrees on: security of supply is crucial. Being self-sufficient, rather than relying on an ever-more-volatile global marketplace seems like a good place to start.
The good news is that Australian policymakers are closely monitoring the UK situation. They view the UK as a test case or a guinea pig we can learn from.
Australia has the advantage of being able to learn the lessons of the UK without paying the heavy price of these learnings. The transition to a better, greener-energy future was bound to involve some pain, but if we can benefit from watching what happens elsewhere while avoiding some of what they have to endure, the pain for Australians will be minimised.