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What’s behind surging energy prices?
Electricity and gas prices keep rising, with seemingly no end in sight. So, what’s happening and how can you mitigate the worst effects? We spoke to Geoff Berry of the Energy Action Group to find out.
The era of cheap natural gas is over
Natural gas, which is used to both generate electricity and heat for homes and businesses, has been abundant and cheap over recent years, however, in 2021 prices ballooned as demand drastically outpaced new supply. European gas rates have reached record highs while deliveries of liquid natural gas (LNG) to Asia are near an all-time high for this time of year.
Why has demand increased so quickly?
Climate change is playing a big part. Heavily polluting coal fired electricity generation is being phased out and replaced by gas-fired generation.
Whether it is searing heat in Canada and SE Asia, or prolonged cold and wet in Europe, the effects of climate change cause spikes in demand and disruption to supply. A cold, wet and prolonged winter in Europe resulted in record low levels of gas storage. Gas stocks, which would usually be replenished during summer months when demand is weaker have remained low, and with limited supplies heading to Asia, prices have soared.
Carbon Pricing: Prices in the world’s biggest carbon market are soaring
Sky-high carbon prices are getting added to electricity bills: The EU Emissions Trading System (ETS), charges power companies for each tonne of carbon dioxide they emit. Prices have risen from €11 per tonne to €55 per tonne since 2020.
The world is facing a structural shift, driven by the clean energy transition.
The consensus is that no matter how you look at it, gas provides a readily accessible (and currently) affordable transition fuel. As major economies commit to reducing carbon emissions, natural gas helps bridge the gap between coal and a carbon free future. Consequently, the price of gas is likely to stay elevated over the medium-term and probably rise over the longer-term.
Natural gas emits 50% less CO2 than coal and has become the fuel of choice for countries urgently seeking to reduce their CO2 emissions. With few other options, governments will increasingly rely on natural gas as a ‘cleaner’ replacement for coal as they seek to reduce carbon emissions.
What is the consensus on future energy prices?
Whilst predicting future energy prices is an inexact science, the underlying factors are hard to ignore.
What should you do?
In the likelihood of energy prices continuing to increase it’s more important than ever to employ energy management practices in reducing gas and electricity consumption. Some estimates put energy wastage at close to 20% in the UK. The causes range from simple inefficiencies to using energy unnecessarily whilst buildings are empty or partially occupied.
There is much that can be done to mitigate and eliminate energy wastage and the Energy Action Group has long championed a virtuous energy cycle for managing energy, cutting wastage, reducing demand, and generating power onsite. Not only will this cut your costs and reduce your dependency on the grid, but it will also cut your carbon emissions.
Your AIM membership gives you access to the Energy Action Group, a consortium scale energy buying group. Click here to read more>>