Dr Iain Staffell, Professor Richard Green, Professor Tim Green and Dr Malte Jansen – Imperial College London
It has been all change for Britain’s energy sector over the last quarter. Since the last issue there have been two new prime ministers, meaning two new Secretaries of State for BEIS, and two new sets of priorities for the regulations governing the power sector.
In September, Jacob Rees-Mogg took charge of energy within the Truss government. He supported lifting the ban for onshore wind and rapid expansion of the transmission network to help move renewable power around the country. However, Truss saw solar farms as ‘one of the most depressing sights’ in Britain’s countryside, and looked to ban ground-mounted solar PV from more than half of all farmland. In October, Sunak took over as Prime Minister with Grant Shapps leading BEIS. The solar ban is gone, but Sunak wanted to keep the ban on onshore wind. Pressure from Conservative backbenchers has brought compromise, and the ban may be overturned after a consultation period.
The Truss government opposed a windfall tax on the energy sector to capture some of the enormous profits reaped from high gas and electricity prices. The Sunak government will instead raise the tax on oil and gas extraction to 35%, although a large caveat means this can be sidestepped by investing in new oil and gas infrastructure. BP and Shell report having paid zero windfall tax thanks to investment offsets. A new windfall tax of 45% on electricity generator profits will also be introduced, which will primarily hit older wind farms and nuclear power stations.
It has also been all change for energy prices. Our first article looks at how gas and electricity prices fell through Autumn to their lowest since early 2021. The way in which power prices are defined is up for consideration as the government looks at new rules for the electricity market. Our second article looks at ‘locational pricing’, how wholesale and retail prices can vary across the country according to local supply and demand.
Wholesale natural gas prices in the UK over the past decade (left) showing the minimum, maximum and average daily price in each year, and during 2022 (right) showing daily spot prices.
The 2022 average of £69/MWh equates to 200 pence per therm.
Finally, the weather has abruptly changed as the mild start to Autumn has finally given way to winter cold. Across Europe, many countries have managed to cut their gas consumption by around 15%, but our third article shows there has been no such fall in the UK. Industry’s gas demand has halved in response to high prices, but consumption by households has not fallen at all when we account for the weather. This does not bode well for how exposed we are to price volatility or even shortages of gas over winter.
Britain’s homes could however be a major contributor to saving energy. Our final article explores how much gas British households could save in the short term. Changing boiler settings and turning the thermostat down by 1°C could together cut gas demand by up to a fifth, saving the average household around £300 per year. This is an instant win, so could help over the coming winter until the mass roll-out of insulation and retrofits can start to help.