Wednesday, February 28, 2024

The UK energy crisis explained

The UK is dealing with an ongoing energy crisis which has increased the cost of living for the general population and businesses which are now struggling to survive. But why has the UK particularly been affected? And what’s caused this sharp increase in prices which has led to an energy crisis?

Let’s have a look at some numbers.

How expensive is energy in the UK?

According to the National energy Action, the number of UK households in fuel poverty is 7.5 million as of April 2023 – a three million jump from two years ago.

And as expected, the change in average energy bills has taken a significant leap within the last two years as its reached £2,500 – a £1,362 increase. The UK government had introduced a support scheme to help most customers pay their electricity bills, but now that it has ended people are left with more to pay.

However, those are just numbers for the average household. The energy crisis has acutely added to the cost of doing business and more than 20% of businesses in the UK have expressed energy prices as their main concern. The government provided £18 billion to assist businesses but this program has also ended.

What caused it?

The UK is known to be overly-reliant on gas and unfortunately this time it has caught up to them. The UK uses gas to generate up to 40% of its electricity and for heating 85% of its homes.

But the combination of high gas prices set by international markets and reduced supply as a result of the Russia-Ukraine conflict has created a myriad of problems for the UK. Limited gas supply has caused for record high prices and destabilised the sector as a whole.
 
Combine that with the current global inflation and we have a disastrous equation for anyone trying to pay their bills. Although 50% of UK’s gas is sourced within the nation itself, the remainder is slowing it down.

Why businesses are at greater risk

Unfortunately for businesses, the UK energy crisis hits them harder than the consumer. Why? Because they have less protection than the consumer as a result of the OFGEM (Office of Gas and Electricity Markets) energy price cap not applying to businesses.
 

According to the OFGEM, the price cap is a maximum price that energy supplies can charge for each kilowatt hour of energy used. Consumers are awarded a price cap because they are less likely to look around for energy supplier alternatives and are consequently stuck with default prices – placing them at a significant disadvantage.

Now that the business support schemes have also ended, owners are faced with the dilemma of dealing with the costs or increasing their products/services price by at least 25%. But businesses can’t raise their prices anymore. They know that their customers are already struggling because of inflation and the energy crisis – raising prices only increases the likelihood of losing consumers.

Many smaller businesses are forced to use their personal funds to support operational costs and it’s coming down to how long they can last. The Guardian had reported there were 20,200 fewer businesses in the second quarter of 2022, which has broken all records.

Overall, it’s tough running a business in the UK right now.

What have businesses been advised?

The UK energy crisis is difficult to traverse alone but the government has advised businesses to follow a few basic steps to reduce difficulties.

Unable to pay: thousands of businesses have been unable to pay their bill during the energy crisis, but it’s paramount to be vocal with your supplier. Don’t wait for them to cut your energy and instead reach out to discuss the possibility of a payment plan.

Whether it’s negotiating a payment reduction or requesting more time – make sure to reach out during the energy crisis.

Improve your efficiency: explore every possible means of reducing your energy usage. This can be done by sourcing lower wattage light bulbs, turning off switches that aren’t in use, reducing heating when possible and purchase an accurate meter for monitoring usage.

Take regular readings of the meter and watch for any activity which spikes the number. Addressing inconsistencies early will be important for reducing bills and saving every bit is important during an energy crisis.

Do the numbers add up? – we’re sure your energy supplier is billing you correctly, but for those being charged off an estimate, you will definitely want to match the numbers against the meter readings. 

Support eligibility – there are several energy grants in the UK which you may be eligible for. These are publicly displayed on government websites and will come handy during the UK energy crisis.

Overall, the UK energy crisis is a dire situation and the numbers of businesses which have closed because of it support that sentiment. Prices are also set to increase next year, but businesses and consumers will need to wait to see what government support schemes roll out in the future.

 
 
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