By Russell Bruce
The rising cost of gas is hitting businesses hard and consumers are seeing the prices they pay for gas and electricity rise by unprecedented amounts. The notifications on increases we are receiving seem way ahead of the increases Ofgem approved. What is more surprising is prices are higher in the UK than in most of Europe. The UK, and therefore Scotland, is still one of the largest gas producers in Europe, 62% of it from Scottish waters.
This does not protect us especially from global demand and supply issues but why spot prices for the UK this morning were so much above what Europe is paying means something is seriously wrong with UK energy policy and how it is being managed. England’s over dependence on gas for electricity generation is one aspect. In this fast changing arena, every country is desperate to secure supplies to keep lights on, factories and meat processors producing against the already difficult background of Covid, labour shortages and an HGV driver deficit. The UK has the further disadvantages that Brexit has piled on top of an energy crisis.
Never mind though Blighty is now a military power in Asia with an aircraft carrier, mainly supplied with US jets, and possible contracts to be involved in providing nuclear subs to Australia. It is all a case of tell but don’t show on any account, people might get a handle on reality.
But we digress. Energy prices on the spot market for later delivery are constantly in flux and when demand pressures build buying for later supply simply goes through the roof. Scotland is constantly told our oil and gas economy is over and worthless. Well clearly not. This morning LCP a firm of financial, actuarial and business consultants published this table. The UK, the second largest gas producer in Europe, is paying the highest prices by some margin. All prices are in Euros. The UK is listed on the map at €177.05, Norway at €74.05. The market has decided the UK needs to pay 136% more to buy gas.
OK, Norway is Europe’s largest gas producer so let’s look at Germany with its massive manufacturing base and known to be desperate to secure gas to replace depleted stocks as a result of a cold winter. Still short now with summer over and winter on the horizon. The gas price for Germany is €82.83, similar to the price for the Baltic states, Poland, Czech Republic, Belgium and the Netherlands. These countries are being asked to pay much less than the UK, paying an average of 112% more.
Meanwhile, as people are expressing concern and anger in response to the notifications of the energy hikes, and news of energy suppliers going bust the UK Business Secretary Kwasi Kwarteng is planning to meet belately with the energy industry and regulator Ofgem as a bundle of suppliers run out of energy.
In the strange world of deregulated energy suppliers there were 70 at the beginning of the year, the BBC reported 7 have gone in the last few weeks and predict 4 more are set to fail. Bulb, the sixth largest supplier in the UK is staring at their light bulb and it is dimming fast. Bulb are calling on the UK government to bail them out. Insiders have predicted the carnage is set to continue with the number of energy companies being reduced to around 6 -10 big players by the end of the year.
Boris Johnson, the PM (Prime Master) of glib statements, announced that the energy challenges were ‘temporary’ and would soon start to fall. Will that be in time for a Christmas with no turkeys and not much in the way of household heat?
Existing energy suppliers are either not keen or downright unwilling to take on customers from energy retailers who have gone bust. Ecotricity told BBC radio 4 they would not, as current wholesale spot prices mean they are losing money on their existing customer contracts. The Ofgem set price cap on energy bills is at present £1,277, having been raised by £139 last month. Another price increase authorised by Ofgem is expected in the spring. Ecotricity claim it is currently costing them £1600 to supply the average house.
Cabinet Secretary for Finance Kate Forbes has announced contact from Kwasi Kwarteng who is talking to the devolved administrations. That makes for a change but then England only produces 82% of the electricity it needs and is reliant on gas being sent south from Scotland. As we reported in Power Scotland: energy from land and sea “Of the gas brought ashore at St Fergus in Aberdeenshire only just over a quarter is required to meet Scotland’s needs. A broadly similar amount is exported to N. Ireland and the remainder to England.
Energy retailers going bust is not a new problem
There have been warning signs for months on the shortage of gas stocks in Europe. That for England should have been flashing red as was the likelihood many more energy retailers would go bust. The business strategy of offering rates below cost in the knowledge that most people do not switch supplier in the hope of profitability when the annual increases are added is a poor model for any business unless they have very deep pockets to see off the competition.
Since November 2016 – 29 and counting energy businesses have gone to the wall – 8 in 2018, 9 in 2019, 3 in 2020 and 7 so far in 2021. The full table can be found at the end of this article thanks to energyscanner.com for keeping tabs on the list of casualties.
Strange when free enterprise finds its trousers are threadbare they call on the government to bail them out. Government is a pseudonym for us the paymasters at the end of the day when a national government operator as is the case in Germany and Italy is a more appropriate means of keeping energy and heat affordable. The SNP conference passed an amendment calling for a national energy company and the thinking and reasoning of delegates was understandable. Such an ambition is probably only possible with independence as the financing and ability to step in during periods of high volatility requires significant resources.
Scotland is an energy rich nation but the full advantages of our energy wealth and ensuring affordability can only be maximised with independence. Newsnet believes Scotland’s grid should be in public ownership after independence and that we should follow other European countries with a better understanding of the responsibilities of the right to affordable heat and energy.
How likely is it a Johnson government would contemplate taking public ownership of failed energy retailers? A ‘bad energy suppliers’ solution has been mooted in line with the ‘bad banks’ of 2018. Johnson might be forced down that line. Energy consumers have more votes than energy companies but we know it would be sold off as soon as possible. Tory governments sell everything they can lay their hands on in order to deliver tax cuts to people who don’t need it.
Help for households facing fuel poverty needed
It is estimated that the crisis could push a further 800,000 households into fuel poverty. Kwarteng said this morning small firms would be allowed to go bankrupt, with their customers auctioned off to the company prepared to offer them the cheapest rate (our emphasis). It is clear from our report ‘surviving’ companies are not up for that. They would need to be paid.
Spain has sent out cheques to households to help people pay their energy bills. Spain and Portugal are not well connected to draw power from other European countries. Greece is also helping households with energy bills and Italy is about to. We have a winter fuel allowance in the UK of £200 per household, £300 for over 80s. This is never increased in line with inflation and energy inflation is going skywards. Newsnet is calling for this to be doubled with the existing payment as usual before Christmas and a further equal payment made in January or February and both payments extended to everyone on Universal Credit. Pretence that there are no money trees is nonsense. As a country with its own currency the UK has access to a forest of money trees when circumstances dictate, as it does repeatedly while pretending otherwise.
The crisis the UK is facing is more than enough to bring the Johnson government down. Governments have gone for less. That might be the bonus but the people will pay the price on the hardship generated if he does not find another money tree. That would tear his party apart but he may find he has little choice. Ofgem have been warning of the impending crisis for nearly 2 years and the warnings have fallen on deaf ears. It would have cost so much less to have been dealt with this earlier.