IC - Energy's Northern Rock moment4 Sep 2022 15:50
Despite boom times unexpectedly returning for the UK’s oil and gas majors and North Sea producers (read more about the case for investing in Shell and BP in Alex Hamer’s in depth feature and Mark Robinson's take on how the energy crisis has sparked a North Sea reappraisal), we are heavily reliant on imports. Norway, not our part of the North Sea, is our primary gas supplier. And while the amount of energy generated in the UK by wind increased by more than 700 per cent in the decade to 2020, we are far from having energy security.
That’s not because of the war in Ukraine. It’s because plans laid down years ago for a nuclear and renewable future have been repeatedly derailed and delayed while incentives targeting greater self-sufficiency have been neglected, complicated and watered down. An incorrect assumption took hold that we could always buy in what we wanted, at a good price: it smacks of Northern Rock’s ultimately fatal error of judgement in assuming it could always source funds for mortgages on the markets, rather than using customer deposits.
Average annual household energy bills are now expected to exceed £5,000 by early next year, and to then rise to around £6,500, in contrast to £1,138 this time last year. Such is the scale of the rise that UK households now collectively face paying pay more for energy than the government spends annually on education and defence put together, according to climate change action group Carbon Brief.
Following Russia’s attack on Ukraine, low carbon energy plans have been updated in light of the need for increased energy security and in April Boris Johnson unveiled the government’s new strategy, which promises that all of the country’s electricity will come from low carbon sources, including mini nuclear power stations, by 2030. But we haven't even managed to open Hinkley C, the UK’s first nuclear plant in decades, and that’s after years of delays.
Soaring energy prices aren’t going away any time soon. Scottish Power’s £100bn emergency bailout idea is predicated on two more years of rising energy costs. National Grid’s view is that we are facing a further three years of this crisis, and it’s considering how to incentivise factories to cut their power usage.
Whatever help for households is eventually forced out of the government in the coming days or weeks (options include expanding Rishi Sunak’s energy rebate plan, capping energy bills as per Scottish Power’s proposal – with the extra cost to suppliers covered by government and repaid through tax or additions to bills over the next decade or so, and extending the windfall tax levy amount and/or duration), none of these measures will be a big enough blanket to smother the crisis and prevent the economy being singed.
Even with help, consumers’ bills are going up, which means less money for spending on goods and services elsewhere. Second, high energy prices will be a serious blow to many businesses. The Federation of Small Businesses
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