You may have seen in the news that wholesale energy prices are now coming down from the...
The Cost of your Energy
“Accept certain inalienable truths: Prices will rise. Politicians will philander. You, too, will get old.”
- Mary Smich
Invest in energy management.
If I could offer you only one tip for the future, energy management would be it. The long-term benefits of energy management can be proved by experts like the OAK Network, whereas the rest of my advice has no basis more reliable than my own, meandering experience.
I will dispense this advice now.
Get used to rising energy prices
American journalist Mary Schmich was right when she said that rising prices are a law of nature just like growing old or dishonest politicians. If you want evidence, look at energy prices.
Energy bills in the UK are soaring. Wholesale gas prices, which quadrupled over the course of 2021, are primarily to blame, and as the UK is still largely dependent on natural gas for electricity, that means electricity bills are going up as well as gas bills.
The price cap for domestic energy bills will balloon by more than 50% in April and will likely go up again later in 2022. Businesses are not currently protected by a price cap, so tens of thousands of companies are facing much higher rises.
You could argue that this is a ‘black swan’ event – a one-off surprise. But it’s not that simple; increasingly volatile energy prices are here to stay for the foreseeable future unless significant changes are made to our energy system.[i]
Even if volatility settles down, the general trend in prices over the next decade and beyond is only going in one direction – up.
The zero carbon challenge
In the long-term, moving to a zero carbon electricity grid powered by low cost renewables will bring volatility and prices down. In fact, if there’s one lesson we should learn from the current crisis, it’s that if we had invested more in renewables earlier, we’d have been more protected from the gas price spike.
However, there’s a long way to go before this vision becomes a reality.
Consider what needs to happen over the coming years for us to transition to a zero carbon society:
- Electrifying transport
Transport is now the UK’s largest source of greenhouse gas emissions and electric vehicles will play a huge role in tackling the problem. Over the course of this decade we will see millions of electric cars and vans hit the road.
This will require a colossal amount of charging infrastructure that will rapidly push up electricity demand from transport – potentially up to 31 times higher by 2040 than current levels.[ii]
- Electrifying heating
Heating is another area where we’ll see huge growth in electricity demand over the coming years. Millions of gas boilers in homes and businesses need to be replaced by clean electric technologies like heat pumps. Natural gas is also used to fuel many heavy industrial manufacturing processes, and some of those will be switched to electric technology as well.
When you combine the electrification of transport, heating and industrial processes, the government’s own advisors expect total electricity demand to surge by 50 per cent to 2035, doubling or even trebling by 2050.[iii]
- Managing the wires
All of this additional demand will put a huge amount of pressure on the grid. This will have to met overwhelmingly by renewables like wind and solar which, while great for the climate, are at the unpredictable mercy of the Great British weather. Meanwhile, reliable coal and gas power will be phased out, along with several retiring nuclear power plants.
Dealing with this challenge will require a complete transformation of our ageing electricity grid. It will need to be leaner, more flexible and able to support a two-way relationship where energy consumers will also in many cases be energy exporters as well.
The existing system wasn’t designed for this. Network operators will have little choice but to recoup the required investment by increasing the network charges added to your bill.
The result of the above can be watered down into a simple equation:
Demand for electricity increasing
the costs of transmitting and distributing that electricity increasing
the cost of energy increasing.
You can shop around for more competitive energy tariffs to try to keep rising costs under control, but ultimately the only way to avoid the rising tide is to cut down your consumption.
Your first port of call should be energy management, to optimise your site and maximise the efficiency of the energy you already use. Some of the simplest changes to your consumption patterns can often have a huge impact, even if you can’t see the problem at first glance (this is exactly why intelligent energy management platforms like OAK Network exist – to do the looking for you).
At the end of the day, the future is uncertain. The crystal ball is never clear, and the energy costs you face will depend largely on what politicians and policymakers choose to do (or not do) over the next few years.
Maybe we’ll make great strides to a low cost zero carbon energy system in no time at all, maybe those in power will kick the can down the road a little longer.
But trust me on the energy management.
[i] Cornwall Insight, 2022 https://www.cornwall-insight.com/press/volatile-energy-prices-set-to-continue-into-2030/
[iii] UK Committee on Climate Change, 2020 https://www.theccc.org.uk/publication/sixth-carbon-budget/