The UK risks repeating past policy mistakes, continued reliance on gas is pushing millions into fuel poverty

London, 1 September 2022 | The Institute for Energy Economics and Financial Analysis (IEEFA) warns that the UK government risks repeating past mistakes, following the announcement by the UK Office for Gas and Electricity Markets (Ofgem) of a new energy price cap last week.

The cap, now set to rise by 80% to £3,549 from October, passes on high wholesale gas costs to consumers and will push millions of people across the UK into fuel poverty this winter.

Arjun Flora, Director of Energy Finance Studies, Europe, at IEEFA, says: “Evidence shows that past decisions to reduce investment in renewables and energy efficiency are directly contributing to this price cap rise – yet, the UK government is blaming Russia and global gas prices for the situation, while blindly pursuing policies that prolong the UK’s reliance on gas for heating and power.”

“We urgently need decision-makers to address the real issue by cutting our gas dependence, otherwise ordinary households will continue to pay for poor policy decisions. This means more support for insulation, heat pumps, and onshore wind farms, plus removing support for new gas boilers and so-called blue hydrogen projects.”

Gas prices in the UK have spiraled since Russia began limiting supplies to Europe last year, with record high prices this year following the Russian invasion of Ukraine and repeated further disruptions to supply. Wholesale prices are expected to remain significantly above average for the rest of this decade as Europe continues to compete with Asian buyers for LNG.

Yet, the British government is at risk of repeating the mistakes of 2013 and 2015, when politicians cut back on policies supporting efficiency investments, onshore wind, and zero-carbon homes - decisions which have left consumers more dependent on gas and exposed to global prices.

Arjun Flora adds: “The outgoing British Prime Minister stated in this year’s British Energy Security Strategy that green levies have ultimately helped to keep prices lower. If existing levies were removed now, it would be history repeating itself, to the detriment of UK energy consumers.”

“Meanwhile unrealistic promises are being made about new nuclear reactors, hydrogen and North Sea extraction, while real solutions that should be deployed urgently are still being restricted or ignored.”

Ana Maria Jaller-Makarewicz, Energy Analyst, IEEFA Europe, says: “The volatility of the energy market, which has been impacted by supply and demand factors, geopolitical issues, and abrupt weather changes, is directly affecting the wellbeing of the population, the economy of the nations, and their energy transition goals. The ‘unprecedented times’ that the world has been living in recent years due to health, energy, and climate crises have shown that we cannot continue playing a ‘Whac-A-Mole’ game where just one problem is solved at a time.”

“We need to find an integrated and sustainable solution where all the issues are tackled at the same time and thus preventing that a solution for one sector brings a problem to another one. If there is a need to increase the gas and power cap price, there’s also a need to implement gas and power consumption reduction or replacement solutions before 1 October 2022.”

About IEEFA

The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. IEEFA’s mission isto accelerate the transition to a diverse, sustainable and profitable energy economy. Find out more at www.ieefa.org

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