Why aren’t renewables better protecting the UK from energy price shocks amid Trump’s war on Iran?
Donald Trump’s war with Iran is sending global oil and gas prices soaring; This means higher energy bills, fuel costs and wider economic pressure on households are likely to follow in the UK.
The oil price surpassed $100 (£74) per barrel, reaching $106 (£79) per barrel on Monday morning; An estimated 20 million barrels of oil per day are currently stranded in the Persian Gulf because shipping ships cannot safely pass through the Strait of Hormuz, the critical narrow waterway bordering Iran.
Moreover, the near-total halt of oil from Iran means that around three percent of global oil supplies have been effectively cut off by the war; Analysts say this is worse than the oil supply situation after Russia invaded Ukraine.
Goldman Sachs has warned that the price of oil could rise as high as $150 (£112) a barrel by the end of March, dealing a heavy blow to British consumers and businesses.
Meanwhile, natural gas prices in Europe skyrocketed by 40 percent after an Iranian drone attacked Qatar’s largest liquefied natural gas facility, disrupting supplies from one of the world’s largest producers. In February this year, 35 percent of natural gas was used in the UK came from imported LNG.
Qatar warned it could take “weeks to months” to return to any normal gas delivery patterns to Europe as the war continues, with Israeli jets striking four oil depots in Tehran on Sunday, sending huge polluting fireballs into the sky.
The disruption in supply is likely to lead to rising gas prices in the UK; Experts warn that the UK is particularly vulnerable to price shocks, partly because it has so little of its own storage capacity.
The UK is still heavily dependent on gas; Around 30 per cent of the country’s electricity comes from gas-fired power stations (much more than Germany’s 17 per cent or France’s three per cent) and more than 70 per cent of British homes rely on gas for heating and many for cooking.
This dependence on fossil fuels leaves households particularly vulnerable when international markets become unstable.
The UK’s gas reserves were at just 18 per cent of capacity on Friday, according to new data published by National Gas.
Analysts have warned that annual household bills could rise by up to £500 if the conflict continues.
Why will prices rise even though the majority of the UK’s electricity generation comes from renewable sources?
Renewables, including wind, will provide more of the UK’s electricity by 2025 than any other sourceIt accounts for 47 percent of the total, followed by gas (28 percent), nuclear (11 percent) and imports (10 percent).
However, UK energy prices remain extremely vulnerable to global gas prices. Although the North Sea provides some gas, the price at which it sells is determined by the international market, so it has almost zero impact on gas prices.
But the main reason electricity bills are rising is the UK’s “marginal pricing model”; This means that electricity prices are almost entirely determined by gas prices.
This increasingly controversial system means that the most expensive power source needed at any given time (which is almost always gas) determines the price of all electricity on the grid; even though cheaper renewable energy provides the majority of the power. Given that gas sets the market price by 98 per cent, UK household bills are severely exposed to fluctuations in global gas markets.
Last year, amid unfounded criticism that the UK’s legally binding net zero commitments were the root cause of high energy prices, Dhara Vyas, chief executive of industry body Energy UK explained the clean energy website Carbon Summary “It’s clear what’s driving up electricity bills in the UK.” [is] wholesale costs arising from the price of gas”.
Sir Keir Starmer told the House of Commons last week that Britain had taken measures to protect supplies but his government was under increasing pressure to take further action to ensure a long-term plan was put in place to protect consumers and protect people from fluctuations in the international fossil fuel market.
Many people see the impact of price shocks as an opportunity to make long-term political decisions that will not only reduce uncertainty but also lead to tackling the worsening global climate emergency. The UN is leading the call for decarbonization as a way to reduce the burden of international conflicts on people around the world.
“The turmoil we are witnessing in the Middle East today makes clear that we face a global energy system heavily reliant on fossil fuels, where supply is concentrated in a few regions and every conflict risks sending shockwaves through the global economy,” U.N. secretary-general António Guterres said in an email to The Associated Press. he said.
“In past oil shocks, countries had no choice but to absorb the pain. Now they have an exit ramp.
“Domestic renewable energy has never been cheaper, more accessible or more scalable,” Mr. Guterres said. “The resources of the clean energy era cannot be blockaded or weaponized.”
In the UK, the war also means drivers will be directly affected, with huge increases in fuel costs. AA chief executive Edmund King said the latest turmoil “will inevitably lead to price increases” and “record prices at the pumps” were expected within “10 to 12 days”.
Another economic headache for Britons includes rises in mortgage rates as the slow downward trend in interest rates in recent months has been interrupted by war-induced increases in the prices of goods and services. Some lenders have already increased rates on new fixed-term mortgages. NatWest, HSBC, Nationwide, Santander, Co-operative Bank and Skipton Building Society are among those who did so last week.
