UK Energy Crisis: Government Unprepared as Bills Support Unaffordable
On energy bills support for consumers, it is clear that a 2022-style universal package, which ended up costing £44 billion, is unaffordable. The notion that Britain was better prepared for this crisis is fanciful, with many decisions predating the current government but failing to address core vulnerabilities.
Import Dependency and Fossil Fuel Reliance
Chief Secretary to the Treasury James Murray recently claimed that due to choices made before conflicts, the UK is better prepared for a volatile world. However, this statement failed to calm bond markets, where yields on government debt remain high. The UK's vulnerability stems from significant forces, such as a large and growing dependency on energy imports.
According to the latest Digest of UK Energy Statistics (Dukes), the UK sourced 75.2% of its primary energy from fossil fuels in 2024, mainly oil and gas for transport and heating. While this was a record low, the decrease from previous years like 76.6% in 2023 and 76.8% in 2020 is minimal, highlighting that energy transition is a slow process.
Net import dependency rose to 43.8% in 2024, up 3.4 percentage points from 2023, and has hovered around 40% since 2010. This underscores that while renewables, nuclear, and batteries are future goals, immediate salvation from price shocks is not forthcoming.
Lack of Government Preparedness
It is fair to question what preparations have been made to enhance resilience. On consumer support, the universal package from 2022 is deemed unaffordable, as noted by the public accounts committee a year ago. Retail energy suppliers report that no new data-driven model to identify those in need has been shared, leaving only imperfect tools like the warm homes discount for targeted aid.
Secondly, the link between gas and electricity prices remains unbroken in wholesale markets. A three-year review rejected zonal pricing, opting for undecided adjustments to transmission fees, which risks delaying renewable projects. Gas still sets wholesale prices 80% of the time, benefiting gas-fired stations, nuclear plants, and older windfarms.
Thirdly, the government has ignored calls to increase North Sea drilling. While domestic production might not lower market prices significantly, it could improve balance of payments, tax receipts, jobs, and supply security, especially given higher emissions from imported LNG.
Fourthly, gas storage levels remain inadequate. Centrica's Rough facility was partially reopened in 2022 with limited capacity, but ministers have avoided addressing the need for a strategic reserve. An official report warns of potential gas shortages from 2030-31 if decarbonisation slows or key infrastructure fails.
Conclusion: Sleepwalking into Crisis
Overall, the idea that the UK was better prepared for an energy crisis is unrealistic. It has involved sleepwalking and avoiding difficult trade-offs. Many decisions precede the current government, but the gilts market's harsh judgment is understandable, as little progress is visible on major issues from previous crises.
