From the beginning of the wholesale gas crisis to the end of the newly extended Energy Price Guarantee initiative, gas will have added £4,400 to the average household’s energy bill, according to the Energy and Climate Intelligence Unit (ECIU).
With the extension of the Energy Price Guarantee until April 2024, which capped energy bills for those on a standard variable tariff, to 34p/kWh for electricity and 10.3p/kWh for gas, inclusive of VAT, from 1 October, the analysis showed that the average household will pay £3,212 more due to the gas crisis.
The remaining figure would be covered under the Energy Price Guarantee by the UK government. This stands at £1,181.
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 market then became even more volatile as a result of the Russia-Ukraine crisis which saw natural gas imports blocked. Research by EnAppSys in early 2022 found that during Q1 2022, the average EPEX day-ahead price was £200.80/MWh, while the corresponding Nordpool price was £199.63/MWh — over triple the average prices for the same auctions in Q1 2021. Within day price averages also tripled from £59.62/MWh in Q1 2021 to £194.30/MWh.
The Energy Bills Relief Scheme, which enshrined into law both the Energy Price Guarantee and the Energy Prices Bill, was introduced to ensure the UK was not exposed to high energy bills. As a result of this, the support schemes could cost the government up to £140 billion.
ECIU stated that high wholesale gas prices are predicted to add £2,499 to gas bills between the start of the crisis and the end of April 2024, while the additional expense of running gas power stations is set to have inflated average electricity bills by around £1,895.
“As the chancellor said, this gas crisis is costing the country the equivalent of a second NHS. With families struggling this winter and bills set to rise next year, it seems bizarre that Jeremy Hunt decided not to even fulfil his manifesto commitment on insulating homes,” said Jess Ralston, senior analyst at ECIU.
“Given the high cost of living, many homes may lack the cash to pay for upgrades leaving them and the country exposed to the volatile international gas market.”
Revealed within the analysis is the progress being made via renewable generation and further demonstrated how it is helping mitigate the impact of the wholesale gas crisis. According to ECIU’s Winter Power Tracker, renewable electricity generation resulted in more than 27TWh of gas not needing to be burnt in power stations so far this winter.
However, despite multiple calls for the UK government to support the creation of renewable generation technologies and expand the UK’s capacity, the recent Autumn Statement introduced a new windfall tax on electricity generators – something that has been condemned by the industry.
One of the primary drawbacks of the new windfall tax, which introduced a 45% levy on profits for large-scale electricity generators, is the lack of concern for investment confidence in developing renewable generation projects.
This policy could have a detrimental effect on the industry as a whole, as indicated by RenewablesUK CEO Dan McGrail: “This windfall tax on low carbon power risks deterring investment, at a time when the chancellor should be incentivising clean energy. Unlike in oil and gas, under this levy companies which are making significant investments in renewables will get no tax relief and will be hit by a higher windfall rate.”