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What does the energy crisis mean for the Government’s energy policy?

24 September 2021
| by Field Team

As the UK has plunged into an unprecedented energy crisis with gas prices and energy bills rocketing, what does this mean not only for the Government’s energy policy but also for net zero? Read Field’s Stephen Alton’s analysis here.

There were reports that Kwasi Kwarteng was looking all doom and gloom after being kept on as the Business Secretary in last week’s reshuffle, and it’s easy to see why. In the last month the country has been plunged into a rapidly escalating and unprecedented energy crisis.

This could see more energy suppliers exit the market than survive and cause food and drink shortages this winter. It will also reveal how committed the Government really are to competition in the energy supply market and their net zero targets.

So what’s causing this crisis? Gas prices have rocketed by 250% since January and 70% since August alone. The whole world is seeing high gas prices as economies open post-Covid and demand increases. There’s also a perfect storm in the UK. Calm weather has cut wind output meaning more gas generation is needed, but several North Sea gas platforms have closed for maintenance, and electricity cables that would have otherwise imported electricity from France were damaged and out of action from a fire last week.

This means energy bills for households and businesses are at record levels. Many energy suppliers, particularly the new entrants, are on the brink of going bust as they have promised to sell gas to customers for far less than it is now costing them to buy. Indeed, in the last two weeks almost 1.5 million households have seen their supplier fold, forcing them to auto-switch to a new supplier. Grim forecasters are claiming there could be as few as ten suppliers left after the crisis, down from 40 today.

The toppling dominos continue. Several large fertiliser plants that produce CO2 – used to keep drinks fizzy, extend the shelf life of food and stun animals before slaughter in abattoirs – have shut down because of high energy costs.

The Business Secretary has moved this week to bail out some of these CO2 producers, but has so far ruled out similar action for energy suppliers.

What does this mean for the Government’s long term energy policy? There will undoubtedly be far fewer energy suppliers left in the market, leaving the better backed bigger companies to hoover up customers from bankrupted suppliers. How this sits with a Government that has proudly championed competition and switching over the past decade remains to be seen. Will the Government stand by and let the market do its work, or will they buckle and step in to save suppliers? Will customers still be willing to shop around after seeing their supplier go under?

And what does this mean for net zero? In one of her last strokes of the pen as PM, Theresa May committed the UK to reducing net emissions to zero by 2050. The current Government sees it as one of the top policy priorities, on a par with levelling up. But some believe the current crisis means we should ramp up domestic gas production and imports to avoid future shortages, and others believe we should instead invest even more in wind and solar to get off gas quicker.

The Government have so far said the crisis is temporary and their commitment to net zero is unwavering. But to drive out gas, policy will need to make using that source of energy costlier for customers, at a time when bills are already sky high. What appetite will populist Boris have to sell this to the public, particularly when the limelight of hosting COP26 has faded? The next few months will lay bare how green this Government really is.

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