If electricity prices, delivered through the grid increase for the foreseeable future, whilst prosperity is declining, going off-grid must begin to make sense. Especially off-grid communities.
From “The Times”:
Across Britain, consumers and businesses are feeling the pinch from rising energy prices. Soaring wholesale gas and electricity costs over the past six months have already left millions of households facing the biggest rises in their energy bills in a decade and piled pressure on heavy industry.
There could be worse to come. This week UK wholesale gas and electricity prices hit all-time highs — and it is not even winter.
“It’s very unusual for this time of year,” Murray Douglas, head of European gas research at Wood Mackenzie, the consultancy, said. “This is the sort of thing we start to see when we get cold snaps. The worrying thing is that this is happening now, in September. We’re approaching a winter with not too much margin for error.”
West Burton power station in Nottinghamshire had to be turned back on for the first time in six months because of a lack of wind power
On Monday one of Britain’s last remaining coal plants, due to close for good next year, was fired up for the first time in six months when wind farm output was low. Critics have seized on fears of a winter energy crunch to question both Britain’s reliance on imported gas and the security of its electricity supplies as it builds more wind farms to tackle climate change.
Experts say the causes of the latest gas and power price rises are manifold and not confined to Britain. There are similar scenes across Europe, with record prices provoking protests in Spain, and natural gas prices are surging globally amid a fundamental mismatch between supply and demand.
“The European winter was cold and long, causing a significant drain on gas in storage across the Continent,” Thomas Rodgers, of ICIS, the price reporting agency, said.
In Asia the winter was also cold and demand has bounced back particularly strongly from the pandemic, drawing cargoes of liquefied natural gas away from Europe. The problem has not gone unnoticed in Beijing: yesterday China said that it would sell oil from its state petroleum reserves for the first time to “alleviate the pressure of rising raw material prices”, easing the pressure of rising “feedstock” costs affecting its domestic refiners.
Energy supply has been made worse by a lack of wind in Europe, making Britain more reliant on energy from gas
Traders had hoped that Gazprom, the Russian multinational, would boost pipeline gas supplies to Europe, but this has not been forthcoming, prompting claims that it was withholding supplies as leverage to complete its controversial Nord Stream 2 pipeline. Rodgers however, said that it appeared to be more a question of capability, with a fire at a crucial plant hampering capacity.
Douglas said that there had been “disproportionate attention” on Russia when the UK’s own gas production had “really struggled”, down 28 per cent so far this year owing to maintenance and Covid-related project delays. “It’s a big feature of the current gas price rally — we are having to import more gas,” he said. The consultancy believes British production should recover in the months to come, but even then sees no let-up in prices. “There’s a lot of nervousness in the market. It’s been a long time since Europe has entered a winter with such little gas in store,” Douglas said.
High gas prices have been a key driver of power costs because Britain generates the biggest share of its electricity from gas-fired power stations. Phil Hewitt, director of EnAppSys, said it was “a perfect storm of events”. Coal prices also have risen and carbon prices have surged, further pushing up the costs of burning both gas and coal.
At the same time, he said there was “a shortage of traditional large generation stations”: coal plants are closing, some gas plants “were mothballed and won’t be back this winter” and there have been maintenance outages at nuclear sites.
Making all that worse, there has been much less wind power than usual, making Britain even more reliant on burning expensive gas. “This summer was one of the least windy in this part of the world since 1961,” Hewitt said. “We can expect [power] prices to increase further and to have more records as gas and carbon seem to be on a relentless higher-priced trend.”
If prices do remain high, that is likely to mean further increases to energy bills when the government’s price cap, covering 15 million households, is next updated in April. It is also a worrying prospect for industry: UK Steel said this week that the record prices had already “forced some steelmakers to briefly suspend operations . . . when the cost of energy goes sky-high”.
Proponents of renewables, such as Greg Jackson, chief executive of Octopus Energy, argue that “the staggering increase in global gas prices shows the importance of moving to cheaper renewables”. On the other hand, the Nuclear Industry Association says that the impact of low wind power shows we must urgently invest in new nuclear plants to provide “reliable, always-on, emissions-free power”.
Guy Newey, strategy director of the Energy System Catapult, said that the experience of recent days was a “postcard from the future energy system”, in which more wind and solar would “create spikier wholesale prices, sometimes negative, sometimes high . . . There is no fundamental reason why a grid with a higher proportion of wind and solar cannot be just as reliable as our current energy system, but future electricity markets need to properly reward clean technologies that provide back-up capacity, energy efficiency and flexibility, including the storage provided by electric vehicles.”
British electricity prices surged to £2,300 a megawatt-hour as Ireland warned of a power shortfall that could lead to blackouts. The peak is more than ten times higher than the value at 8am yesterday. Ireland, which usually exports wind power to the UK, is facing supply shortages and issued an amber warning signalling possible blackouts.
Behind the story
Energy and fuel accounts for 6 per cent of the overall inflation basket, but they can have a big impact because prices are volatile (Philip Aldrick writes).
Oil prices, which have nearly doubled to $73 a barrel in the past year, account for about 0.4 percentage points of the present 2 per cent rate of consumer prices inflation, largely through petrol.
The Bank of England expects inflation to peak at 4 per cent, while Capital Economics, the consultancy, is forecasting 4.5 per cent, with Ofgem’s increase in household bills from October accounting for 0.7 percentage points of that.
The recent rise in gas and energy prices may lift inflation even higher. Ofgem’s next price cap starts in April and is based on wholesale market energy prices between August and January. According to Neil Shearing, chief economist at Capital Economics: “If current prices are sustained, there could be another spike in inflation in April next year.”
Indeed, the impact could be swifter if companies decide that they have to pass on their own higher energy costs. “Companies tend to absorb energy costs if profit margins are wide, but if they are tight because costs are rising elsewhere and demand is strong, they may feel able to raise prices,” Shearing said.