Wholesale gas price volatility caused by the Russian invasion of Ukraine, has cost the UK around £1,000 for each adult, the Energy and Climate Intelligence Unit (ECIU) said.
Via analysis conducted by the independent advisory organisation, it is estimated the invasion has led to the UK spending around £50 billion to £60 billion as a result of the increase in the price of wholesale gas. This is similar to the cost of furlough during COVID-19.
The invasion contributed to a severe energy crisis across much of Europe. The energy crisis started in 2021 with skyrocketing gas prices due to shortages following the COVID-19 pandemic. In late 2021, this was followed by low winds and outages at generators across Europe, which turned the gas market highly volatile. The invasion of Ukraine in early 2022 led to economic sanctions on Russia, which contributed to surging gas prices.
The ECIU previously stated that from the beginning of the wholesale gas crisis to the end of the Energy Price Guarantee initiative, gas will have added £4,400 to the average household’s energy bill.
“As the IMF has pointed out, the energy crisis hit UK households harder than those in other western European countries because as a nation we’re incredibly dependent on gas. The price of gas is largely set by international markets, so the only way to protect yourself is to use less,” said Dr Simon Cran-McGreehin, head of analysis at the ECIU.
“The onshore wind ban has been one of the barriers to this. We’re also running behind places like Sweden, Poland and Estonia on installing electric heat pumps. As renewables and heat pumps proliferate, less imported gas is needed, which in turn benefits our balance of payments and energy security.”
Should the UK Government have accelerated the deployment of heat pumps, energy efficiency and onshore wind, this could have saved a typical household up to £1,750 in 2022, ECIU stated.
Renewable energy has been touted as a method to reduce the cost of energy bills for UK citizens, as well as providing energy security for the nation. However the recent Autumn Statement introduced a new windfall tax on electricity generators – something that has been condemned by the industry.
The Electricity Generator Levy taxes electricity generators at a rate of 45%, which covers aggregate revenue generators make above £75/MWh. Generators whose in-scope generation output exceeds 100GWh annually are subject to the levy, which applies only when extraordinary revenues exceed £10 million. This came into force from 1 January 2023 and will be legislated for in the Spring Finance Bill 2023.
The levy could have a negative impact on private investment and could lead to a solar and wind generation shortfall of 54GW by 2030, Energy UK said.
