No one can have failed to notice that prices for energy usage have risen to dizzying amounts in the UK, with many homes and businesses at real risk of not being able to pay their bills.
There are many reasons for this sudden rise, all of which happened in such a short space of time that nobody was prepared for the knock-on consequences. This has left energy companies and the UK government in a quandary, with costs being forced onto customers and the government having to step in with a variety of energy finance schemes to help the worst-hit.
The UK’s dependence on fossil fuels
The reason the UK is feeling the brunt of the increased costs more than most, is that we have a much higher dependence on gas to heat our homes and fuel electricity power stations than most other countries around the world.
Approximately 85% of domestic dwellings around the UK use a gas boiler, and UK homes are poorly insulated in comparison to most other European countries, meaning that we use more energy to get the desired temperatures.
How can homeowners reduce their energy bills?
If you are in a position to do so, opting for renewable energy systems such as solar panels and wood pellet boilers could see your bills reduced considerably. However, there will be an upfront cost to doing this work, so you would need to be sure you could afford it in the short-term, for the long-term gain.
Post-Covid demand: the impact on UK businesses
After nearly two years of business decline, thanks to the lockdowns imposed by Covid and the resultant staff shortages, the demand for energy suddenly sky-rocketed again, as things got back to ‘normal’. Nobody was quite sure what to expect when we came out of the grips of Covid, and many businesses have struggled to get back on their feet and return to pre-pandemic levels of custom.
Many have folded in the aftermath of one of the most destructive health crises in living memory.
The energy companies, and the subsequent drain on natural resources, were unprepared for such an eventuality and the wholesale price of gas increased to astronomical levels to cope with the demand.
This has been the death knell for several businesses that have been unable to keep their heads above water to handle the rapid increases in costs that reduced supply and greater demand has brought.
This extra demand also coincided with Russia’s decision to invade Ukraine, meaning that the gas supplies from these countries into Europe have been made far more challenging than they otherwise could have been.
In 2021, Russia was supplying EU countries with 40% of their natural gas, with Germany as the largest importer, followed by Italy and the Netherlands. That had dropped to around 17% by August 2022, according to EU figures. The countries that the UK had previously been importing gas from are now in more demand by neighbouring countries as they turn to them instead.
Economic sanctions on the country for waging war, and its own decision to halt deliveries to Europe, mean that we are also feeling the effects of reduced provisions.
Both of these reasons, and potentially that of Brexit, mean that the UK is currently in the grips of its worst economic recession since 2009.
The cost of living is at crisis level, with the Government being forced to step in to help control things. Inflation rates have soared to in excess of 10%, with the Bank of England base rate reaching a 14-year high, with many homeowners asking the question ‘how much will my mortgage go up if interest rates rise?’ and, ‘will interest rates go down this year?”. Meaning that anyone with a mortgage is now liable for higher payments too.
Again, these economic changes are having a trickle-down effect on supply and demand, with energy companies needing to increase their prices to keep up with their own costs, in what is a circle of destruction.
Combating energy prices with behavioural changes
The only thing any of us can realistically do to combat rising energy costs is to make changes to our own behaviour. This could be cutting down on our energy use by doing simple things such as not leaving items on standby, turning off lights when we don’t need them, and setting the thermostat a couple of degrees lower than we might usually have it.
In the grand scheme of things, you may think these wouldn’t make much of a difference, but you could find you are surprised by how much it adds up. Installing a smart meter is a great way to enable you to keep track of your energy usage and make lifestyle changes accordingly.
The energy price hike shows no signs of stopping, or even slowing down, with UK Prime Minister Rishi Sunak and Chancellor Jeremy Hunt choosing not to cap energy prices at the lower amount that their predecessors Liz Truss and Kwasi Kwarteng set out in the Autumn budget, as they take a firmer grip on the UK economy. Nor does the war on Ukraine look like ending any time soon.
We are left bearing the brunt of the cost of energy for as long as is needed, so any small steps that we can all make to reduce consumption will be better for everyone all round.