UK Energy Crisis – The Outlook for 2023

January 16, 2023 by Admin

 

During the mid-December cold snap that blanketed much of the UK in snow and ice, many households across the country had little choice but to crank up their central heating. It was a decision few had wished to make as gas bills continued to spiral upwards.

 

To put this into perspective, in 2021 the average UK household spent £111.60 per month on energy  – gas (£47.90) and electricity (£63.70). By the end of 2022, the typical household not on a cheaper fixed tariff paid almost £182 per month.

As we roll full into 2023, we look at how the energy crisis might unfold.

 

What’s the Latest on the Energy Crisis?

It’s a mixed picture. In the second half of 2023, a fall in wholesale gas prices is forecast to lower the average household energy bill by £500 a year. In real terms, this means that the price cap – which dictates energy bills for most UK households – is expected to stand at around £2,640 a year in July, rather than the £3,100 per year previously forecast.

Unfortunately, no such cap exists for businesses. The complexity of commercial energy contracts and differences in usage between organisations means a cap on energy rates would be difficult to enforce. 

Moreover, the extent to which government support has stretched the treasury’s purse strings is formidable. State support was only intended to last for six months, and the government has warned that there are no plans to extend that timetable.

In other words, government support for energy bills will be scaled back while any price increases will still outstrip earnings growth.

 

How is the Government Responding?

In September last year, the government extended support to non-domestic energy customers such as businesses, charities, and the public sector. The Energy Bill Relief Scheme (EBRS) offered discounts to all who fell into this category for six months from 1st October 2022 and applied to fixed contracts agreed on or after 1st April 2022 and to deemed, variable, and flexible tariffs.

The Chancellor, Jeremy Hunt, has since stated that new support will be available for the most vulnerable businesses from April 2023, but it is likely to be less generous. More broadly, the approach from Westminster will be to incentivise better energy efficiency.

 

It’s the Cost of the Living Crisis that’s Exacerbating the Problem

An energy crisis alone would have been a hard enough challenge for the UK to overcome, but that it arrived at our shores at the same time as a cost of living crisis has really made things difficult.

Millions of business owners are experiencing increased energy bills at a time when costs in other operational areas are also rising, meaning they’ve had little option but to push prices up. However, the consequence of doing this while a large number of households are confronting rising energy bills is that their products and services are becoming unaffordable.

Food and drink, hospitality, and retail businesses are facing the gravest risk. While still in recovery from the pandemic, shrinking revenues and incomes, for small business owners in particular, is applying pressure that is already becoming too great for some.

 

What can we Expect Gas and Electricity Prices to Look like in 2023?

As noted above, the expectation is that gas and electricity prices will begin to fall as 2023 progresses. Moreover, ‘vulnerable’ businesses may still qualify for state support for their bills.

However, expectations and reality rarely meet in the middle. While the conflict in Ukraine rages on, the prospect that it could escalate remains chillingly real. Further east, concerns continue to mount that China may launch an offensive against Taiwan. If either (or even worse, both) of these events come to pass, the energy market will likely take another pulverising blow.

Rather than hoping for the predicted price drop to materialise, a better option might be to assume they won’t and concentrate on efficiency. Targeted primarily at households, the government’s £18m “It All Adds Up” public information campaign seems to be encouraging this very approach.

 

Is there any Good News?

There is, actually. The volatility of the fossil fuel industry, coupled with its grievous impact on the environment, is turning more people towards renewables.

A report from the International Energy Agency (IEA) suggests that the global energy crisis is causing a sharp acceleration in the move towards renewable energy. Indeed, total capacity growth is expected almost to double over the next five years, surpassing coal as the primary source of electricity generation.

The hardships we are all feeling right now may yet be rewarded with the possibility of global warming being kept to 1.5°C. Those familiar with the 1.5°C target will know the perils we face as an international community if exceeded.

Apart from preventing our planet from slipping into an apocalyptic future, the march towards clean energy will eventually offer businesses greater predictability and reliability with their bills.

Gas reserves may run low, but the wind will always blow.

 

What can my Business do to Prepare for 2023?

As warned above, do not rely on forecasts that state prices will come down. Hope, though an important quality to possess, is not a tactic.

For starters, you can take the most obvious step and review the performance of your supplier of business gas and business electricity. To switch business energy is simply to change the name on the top of the bill. The lights still come on just the same, and the radiators get just as hot. However, the figure at the bottom of the invoice may very well change, as may the quality of customer service.

Beyond switching energy suppliers, you can take various everyday actions while we continue through the winter months. For example:

• Switching appliances off at the socket could save hundreds of pounds a year, depending on how many your business has. Most electrical appliances, such as computers and photocopiers, draw power continuously unless unplugged.
• Closing office blinds at night can prevent warm air from escaping through windows and reduce heating costs.
• Turning down radiators in rooms you aren’t using or use infrequently could save a significant amount each year. Unlike electrical equipment, turning radiator valves down to between 2.5 and 3 is more efficient than turning them off completely.
• Reducing your combi boiler flow temperature to 60°C will save money over the course of the year.

 

So, the Future is Energy Efficiency and Renewables?

It most certainly is, and solutions beyond wind-generated electricity, solar power, and bio-gas are becoming more widely available.

Depending on your business’ location, size, and budget flexibility, solutions are entering the market that, though requiring added upfront expenditure, can offer compelling long-term benefits to both costs and carbon emissions.

For example, businesses close to waterways are increasingly turning to hydropower. Modern turbines, positioned next to rivers and canals, harness the water’s energy and convert it into electricity. Providing there is enough flow, a single turbine can generate between 15 – 70 kW of constant power.

Elsewhere, PyroCore technology, which uses a process called pyrolysis that exposes waste materials to oxygen-free, high temperatures and decomposes them into char, offers an innovative solution to business waste. Furthermore, the residual energy the process creates can be used for multiple applications, including hot water, heating, chilling, and steam generation.

 

A Final Thought as 2023 Begins

Gas crisis, energy market crisis, cost of living crisis, climate crisis. ‘Crisis’ is a word that has already joined ‘unprecedented’ as one we’ll be glad to not hear filling the airwaves every minute of every day.

Such a battery of bad news and ominous warnings can quickly become overwhelming. The most important piece of advice that can be shared as we embark on a new year is to stay calm.

Government help continues until April, and if your business is seriously struggling after that, it could be eligible for additional support. Meanwhile, energy prices are expected to slump as we move into the summer and autumn months. Nevertheless, as already alluded to, do not take this as a guarantee.

In the short term, look to switch your business gas and business electricity if you can, promote sustainability and energy efficiency behaviours throughout your organisation, and explore other sources of energy generation.

 

If you would like to discuss any of the options covered in this blog, contact Tariff.com today.