Over the last 12 months, the energy market has been nothing short of a rollercoaster of volatility for business energy consumers. While the beginning of 2023 saw stability and downward pressure provide much needed relief to the sky-high energy costs seen throughout 2022, recent events have reminded us of the turbulent nature of the energy market.
The Energy Market: A Look Back to 2022 – A Rollercoaster of Volatility
In June 2022, the UK found itself amid an energy crisis. Wholesale energy costs reached record levels, with suppliers quoting unprecedented rates. These costs were influenced by various factors:
- Global Influences: Gas shortages in Europe due to a prolonged cold winter between 2020 and 2021, high demand for LNG from Asia, and complications with the Nord Stream 2 pipeline all played a role.
- UK-Specific Challenges: The UK grappled with low winds leading to reduced renewable energy generation, outages at nuclear power stations, and a fire at a National Grid site in Kent that disrupted power cables between England and France. Additionally, the UK’s low gas reserves compared to other European countries made it more vulnerable to market shifts.
- The Ukraine Conflict: The conflict in Ukraine significantly impacted energy prices. Europe’s reliance on Russian gas, with over 40% of its gas imports coming from Russia in 2021, meant that any disruption could lead to price hikes.
The Calm Before the Storm
As we approached 2023, there was a collective sigh of relief among business energy users in the UK. The Department for Energy Security and Net Zero released a report indicating that by 2025, renewable energy sources, such as offshore wind, onshore wind, and solar power, would become even more cost-effective than previously anticipated. Solar Energy UK even highlighted that solar farms offer the most cost-effective way to generate electricity in the UK, with projected costs of only £41 per megawatt-hour in 2025.
The Australian Ripple Effect
Yes, you read that right! Even challenges as far as Australia are directly impacting energy prices for businesses this week.
European natural gas prices rocketed by over 30% due to concerns about potential disruptions in liquefied natural gas (LNG) supply from Australia, a leading global supplier. The UK wasn’t spared either, with gas prices surging to more than double their typical seasonal value. The root causes were Australian oil and gas workers threatened strike action, raising fears of future supply disruptions.
The Underlying Issue
The recent price surge underscores a deeper issue: Europe’s heavy reliance on LNG to meet its energy needs. With the EU failing to secure enough long-term LNG contracts to offset cut-off Russian gas imports, the region might be forced to buy more from the spot markets, pushing prices up. The European Union views natural gas as a bridge fuel in the transition to renewable energy, but the recent events highlight the challenges in this transition.
This graph demonstrates a 30%+ increase from 9th August with little recovery in the market due to LNG supply concerns.
Time to Act
For business energy consumers in the, the message is clear: the energy market remains volatile, and securing energy renewals is more crucial than ever. If you’re a business energy customer and haven’t yet secured your energy renewals, now is the time to act.
Don’t wait for the next increase in costs: Secure your energy renewals today and safeguard your business against future market volatility.
