Why high energy prices are here to stay

Why high energy prices are here to stay and likely to increase further, for reasons beyond Russia and Ukraine.

Despite some speculation that record high energy prices will eventually go down, our analysis shows otherwise. To begin with the obvious, they have always been going up. 

But there are other reasons to say current high prices are here to stay, and likely increase further.

National Debt and Inflation

Since 2001, UK gross debt as % of GDP has tripled. And now we face highest inflation rates in 40 years and a potential post-pandemic recession. Considering the long-term impacts of geopolitical tensions, supply chain issues and the climate catastrophes, inflation rates1 are likely to remain high. National borrowing2 will continue to shoot up. 

Net Zero by 2050 vs Immediate Crisis 

The government has made a legally binding pledge to reach Net Zero carbon emissions by 2050. To reach this ambitious target, we require strong leadership and immense investments supported by clear policy and actions. 

Unfortunately, we have none. Even the High Court has ruled UK Pathway to Net Zero ‘inadequate’3, and the relating carbon budgets insufficient. 

With the cost-of-living crisis deepening, the government’s priority is on helping the millions of households who can no longer afford their bills or food, leaving limited capacity to face down even more serious challenges in the medium to long term. 

The current short-term focus on symptoms of a wider crisis will hinder investments needed to decarbonise – sufficient funding in clean technologies, renewable energy generation and storage, founding a sustainable infrastructure and economy.

Despite renewables being the cheapest source of energy, cheaper than fossil fuels, consumers are not receiving the benefits of going green. Not yet. 

The current market is built on and for fossil fuels. While we take our time to revolutionise the energy market and transition to use green energy efficiently – we continue to rely on increasingly expensive and polluting fossil fuels4.

We need to invest and rebuild now. Not just commit to vague promises for the distant future without clear actions. Eventually – a greener grid would help to stabilise energy prices, and everyone other than polluters will win. 

Complete Decarbonisation & Grid Electrification 

Electrification means moving away from using fossil fuels as source of energy. Think of a gas boiler or a hob turned electric. And if your energy provider only sells you renewable energy – then you’ve basically decarbonised your home. 

This is what we need to do, as fast as possible, on a global scale – to avert the worst of the climate crisis. 

While the electricity demand in the UK has been going down slightly in the past years, complete decarbonisation, and electrification – strategy in line with our governments Net Zero pledges – will put our electricity grid under a lot more pressure. The UK Net Zero strategy, realistic or not, outlines scaling up from installing 35,000 hydronic heat pumps a year, to potentially installing 1.7 million heat pumps, each year, by mid 2030s5.

There will be more demand for electricity, especially if we aim to get to Net Zero. 

Another thing to consider is the additional running costs of an electric heat pump. They are about 4x more efficient than gas boilers. But as long as gas is much cheaper than electricity, the efficiency savings do not translate into financial savings running it. You may as well be paying more than before6.

Further increasing the pressures on grid capacity is the growing popularity of electric cars (EVs). Options for beautiful cars with decent range now go way beyond Tesla. 

In 2021, more new electric cars were registered than in the whole period from 2016-2020.

In June 2022, 16.1% of all new cars registered, are electric. Their market share is growing rapidly. Close to 1.3 million cars on our roads now are either fully electric or plug-in hybrids7.

UK is phasing out selling new petrol/diesel cars and vans by 2030 and all new cars must be zero emissions from 20358. That means a lot more electric charging.

The UK Department for Business, Energy, and Industrial Strategy (BEIS) projects doubling the electricity generation capacity by 2040, largely from renewable energy technologies. This forecast is largely focused on renewables, import from Europe and storage9.

All of these are high-cost investments, and as we already have a funding gap in the carbon budgets, this process will continue to drive prices upwards.

Other factors suggesting high energy prices are here to stay:
  • Global carbon reduction targets (carbon tax)
  • Increased demand from other sectors and/or drives – for example, cooling during hot weather and increasingly frequent heatwaves
  • Shifting from Natural Gas to electrical heating
  • Replacing Natural Gas with alternatives like Hydrogen is expensive to produce and move around
  • Carbon capture and storage is very expensive – Power plants will have to capture and store residual carbon emissions
What can you do in the short run? 

The short answer is – reduce. Cut down on what you consume and waste. All of us need to apply this in our homes, offices, schools, everywhere. 

The most effective way to reduce your energy bills and environmental footprint, is to take measures that prevent wasting energy. The technologies to help us exist already, we just need to start making most of it.

In our experience, retrofitting with LED and connecting it into Smart Building Controls System reduces lighting energy load by up to 90%. Combined with solar generation on-site, could halve your electricity consumption. In larger buildings, all this work could be fully paid by your energy savings. 

We also must hold our government and energy providers accountable to move to cheap renewables ASAP. 

Otherwise, we’ll keep paying the fossil fuel ‘premium’ on energy prices and funding the world’s largest polluters. At the time when we need global concerted effort to mitigate the worst effects of climate crises, and while ordinary people are struggling with the cost of everything, oil and gas companies are posting record earnings. These profits are largely given out to shareholders.10

They continue to invest heavily in greenwashing and only a fraction of long-term investments have been dedicated to sources of low-carbon energy like wind and solar11.

We as consumers and a society, must accelerate the transition to clean energy. We must demand renewables and wean ourselves off fossil fuels. 

Because when there is demand, the market will have to transform, and our energy prices will stabilise.

1 https://www.bankofengland.co.uk/knowledgebank/will-inflation-in-the-uk-keep-rising
2 https://obr.uk/overview-of-the-july-2022-fiscal-risks-and-sustainability/
3 https://www.clientearth.org/latest/latest-updates/news/clientearth-are-suing-the-uk-government-over-its-net-zero-strategy/
4 https://theconversation.com/renewables-are-cheaper-than-ever-so-why-are-household-energy-bills-only-going-up-174795
5 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1044598/6.7408_BEIS_Clean_Heat_Heat___Buildings_Strategy_Stage_2_v5_WEB.pdf
6 https://www.theguardian.com/money/2021/oct/23/air-source-heat-pumps-how-the-costs-and-savings-stack-up
7 https://heycar.co.uk/blog/electric-cars-statistics-and-projections
8 https://energysavingtrust.org.uk/how-much-do-you-know-about-electric-vehicles/
9 https://www.statista.com/statistics/496283/total-electricity-generation-capacity-uk/#:~:text=As%20the%20UK%20gradually%20moves,sources%2C%20amounting%20to%20132%20gigawatts.
10 https://www.theguardian.com/business/2022/jul/28/an-insult-soaring-profits-at-shell-and-centrica-cause-outrage
11 https://www.clientearth.org/projects/the-greenwashing-files/shell/

Kelly Meiessaar

Kelly Meiessaar

Kelly joined CILS from charity sector. She knew that though charitable causes help millions of people in the UK, preventative climate action is more urgent.

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