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Is high energy prices a sign of what’s to come?

Together, these suppliers account for more than 5% of the market, or 1.7 million customers, and even more warnings could follow.

The failure of these companies is due to soaring gas and electricity prices, which are the result of lower gas storage levels in the winter.

Technical obstacles to interconnectors and plant maintenance are exacerbating the market background.

The recent rise was unprecedented. Electricity prices in the winter of 2021/2022 reached a record high.

The coal-fired power plant has been turned on again.

All of this leads to higher power generation costs and ultimately higher consumer bills.

High prices increase fuel poverty, as energy costs are an increasing factor in household income.

It also impacts the profitability and competitiveness of large industrial and commercial energy users. In response to rising costs, UK-based fertilizer producers need government support for ongoing operations.

Sustainable high energy prices also contribute to rising inflation.

But the rise of high energy prices is not surprising.

Since the Climate Change Act of 2008, the UK has embarked on an ambitious and necessary decarbonization agenda.

This was extended to 2019, when the UK was the first major economy to promise to achieve net zero emissions by 2050.

More recently, Prime Minister Boris Johnson’s 10-point plan for COP26 in Glasgow later this year has featured multiple government-issued consultations, strategies and policy documents focusing on various aspects of decarbonization. It is a precursor.

Our decarbonization efforts are a current high-priced element and have the potential to create more lasting demand for our energy systems.

Higher levels of intermittent renewable energy generation mean that higher cost and more flexible generation will need to make up for the difference if the weather conditions are not appropriate.

In addition, under the UK Government’s tax control framework, consumers will bear the cost of subsidies provided to encourage the cost of this renewable energy generation.

Twenty-five percent of consumer invoices consist of such costs.

This may achieve a more equitable distribution of overall costs and alleviate fuel poverty and competitiveness issues, but it does not eliminate costs.

Finally, carbon market reforms and more aggressive decarbonization targets have (correctly) raised carbon prices, a component of electricity prices.

The UK’s 2020 Energy White Paper points out that demand from heating and transportation electrification, hydrogen production and carbon recovery and storage could double power demand over the next three decades.

Focusing on offshore and onshore wind and solar power at this year’s contract for difference auction means more intermittentness.

Future increases in energy demand do not directly mean higher prices, but the key question is what supply will be built to meet them.

The UK capacity market, introduced in 2014, does not support the material capacity of new base load power generation.

Recent government demands for evidence of capacity market reforms to meet net zero are welcomed and need to provide a mechanism to provide clear capacity-based incentives to meet future growth in electricity demand. I have.

However, incentives can ultimately come at the cost of the consumer.

More generally, changes in energy production and use across heat and transport, and the need for carbon capture, represent new technologies and alternative infrastructures.

These changes do not occur naturally and must be unlocked through public sector support.

This could be driven by either new gas boiler restrictions, top-down regulations such as the sale of gasoline or diesel vehicles, or market-based mechanisms with carbon prices or subsidies.

All at an additional cost.

Achieving net zero cannot escape the fact that it internalizes what was previously the external cost of pollution from greenhouse gas emissions.

For all the stories (and certainly some) of the opportunities, jobs, and new industries that NetZero creates, the routes adopted have material costs.

Energy costs can be high.

Phil Kent for GCP Infrastructure Investment

Is high energy prices a sign of what’s to come?

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