If you look back to the last oil shock in 2022, it was a positive for Renewables.
UK households are being warned that their annual energy bills could increase by £500 because of the war in the Middle East.
After the US and Israel launched attacks on Iran, the conflict in the region has dramatically unfolded, raising fears over the supply of oil and liquified natural gas (LNG) from the Gulf.
QatarEnergy has stopped its production of LNG, taking one of the world’s top suppliers off the market indefinitely. Meanwhile, oil tanker traffic through the Strait of Hormuz has mostly ground to a halt.
As a result, latest figures show the price of UK wholesale gas almost doubled since the start of the war – a situation described as “scary” by consumer champion Martin Lewis. Brent crude, the global benchmark oil price, has gone up more than 10 per cent.
Why Electricity Is Linked to the Cost of Gas.
To answer the question “why is the cost of electricity fixed to the price of gas”, we need to look at the UK’s energy market.
The UK uses a lot of energy. And to meet the energy needs of everyone, we need to pull from gas, renewables, nuclear and oil.
Since 2005, the UK has run its energy market as one large market that covers Scotland, England and Wales. So there’s just one market price for the whole of Great Britain. As a result, we fix the price to the most expensive form of energy, which is currently gas.
This means that we link the price of electricity to the price of gas. As gas is extremely expensive, this commodity heavily drives up the market price of energy.
If we’re running low on wind energy during certain months, we’ll have to make up the shortfall somewhere. And if gas is always the first port of call during shortages, it will continue to dominate the market price for energy and drive up the overall cost of electricity.
So, regardless of whether wind energy is cheaper to
produce, it continues to match the price of gas and explains why the overall cost of energy is so high.
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