By Rupert Redesdale
The car crash that has followed a massive hike in gas wholesale policy has left most small energy companies at risk of collapse. The Government is now thrashing around for a solution, but realistically the only option is to subsidise the companies or more likely try and provide a safety net for consumers using public money.
Why was this almost certain to happen at some point?
Government policy has been based on competition in the market and has ignored the risk of rapid wholesale price rises. There has been the assumption that Government can control wholesale prices which was possible when the UK produced gas to meet all its needs. The depletion of gas fields means 60% is now imported. So why was a cap on prices that ignores wholesale costs introduced?
Ed Miliband (remember him?) without any real discussion or research came up with a rather stupid policy of capping energy prices. Quite rightly at the time it was laughed at, because it is economically illiterate, but unsurprisingly was really popular with voters, so with equally little thought, was adopted as Conservative and therefore Government policy.
So, what makes it such a bad idea?
The simple answer is that the energy markets can be incredibly volatile, and therefore setting a rate twice a year, based on a guess at what future prices will be is inherently risky. The problem is compounded as rates will be set as low as possible to protect consumers, but this moves risk firmly onto the retailers. Retailers, to win customers have offered rates that make razor-thin margins and are now looked into rates that are loss making.
What will happen next?
The likely scenario, is that following a bloodbath of retailer failures, a number of large companies will survive but the cap will need to be raised to allow retailers to recoup losses. It should be noted that some of the large retailers will also leave the market.
The cap needs to be abandoned but the Government needs to face the real issue which is use not cost.
Finding the silver lining…
Higher gas prices will drive energy reduction strategies which will also boost actions towards Net Zero.
Luckily you can find out some great energy saving learnings at EMEX London , hope to see you there!
HELP US to Make EMEX a COVID-secure & Eco-Friendly Event!
A Taste of This Year’s EMEX Speaker Lineup
Project SCENe: Europe’s largest community energy battery installation
Project SCENe (Sustainable Community Energy Networks) looks to accelerate the adoption of Community Energy Systems, a different way of...
Rolls-Royce and Norwegian Airline Widerøe launch joint research programme on zero-emissions aviation
The programme is part of the airline´s ambition to replace and electrify its regional fleet of 30+ planes by...
Discover the Best Energy Efficiency Opportunities in Buildings and Workplaces at EMEX
The built environment is going through a rapid transformation driven by a constant increase in energy prices, disruptive innovations,...
Rolls Royce Capitalizes on Convergence to Speed Sustainability
Rolls-Royce has committed to reduce facilities GHG emissions by 50% absolute by 2025. In his EMEX session, Anthony Hatfield...
The EMA Magazine I July-August 2019
The main issue at the moment, amongst myriad others in this veil of tears we call energy management, is...
To combat climate change “Your Country Needs You”.
Climate change is a reality, the science is clear and the solution is obvious, we need to reduce emissions,...
SmartestEnergy extends its business model with landmark Origami Energy deal
SmartestEnergy, the UK’s leading purchaser of independent generation and a supplier of 100% certified renewable electricity, selects Origami Energy’s...
The New Re:fit 4 Framework: Getting the Public Sector to Net-Zero
The new Re:fit 4 energy performance contracting framework has just been launched. The Re:fit energy performance contract framework may...
