UK ‘critically vulnerable’ to future energy crisis and price rises, experts warn

The UK is “critically vulnerable” to another energy crisis that would see price spikes, the Energy Crisis Commission has warned.

The high-level group of experts, including representatives from Energy UK, Citizens Advice and the Confederation of British Industry (CBI), said the 2021-2022 crisis exposed various weaknesses in Britain’s energy system across three areas – supply, demand and targeted support for the poorest households.

The commission was launched earlier this year to review the impacts of the recent energy crisis on UK households and businesses after Russia’s war in Ukraine caused prices to skyrocket.

‘Dangerously underprepared’

It found that Britain was “dangerously underprepared” for an energy crisis of this type and was one of the worst-hit countries in Europe, ranking second most dependent country on gas and fifth most dependent on gas for electricity against EU nations.

Household billpayers in Britain “paid the price” for the slow pace of improving housing stock, delays to new-build efficiency standards and missed opportunities to build more renewables, the commission said.

In a report released on Tuesday, the group found that on the supply side, Britain is still heavily reliant on gas for home heating and power, and urgently needs more home-produced renewable energy and storage capacity.

Global shocks

The UK has also failed to reduce energy demand, especially from forms of energy such as gas that show volatility when it comes to global shocks.

On the demand side, the country also has badly insulated housing stock compared with many other countries, the paper said.

The report also found that poorly targeted support schemes meant the poorest households suffered – ultimately pushing up the overall cost of the crisis for the UK and driving up national debt.

The impact has been “catastrophic” for some vulnerable households, it said, finding nine in 10 cut back their energy use and 7.5 million have hit fuel poverty.

For vulnerable firms, almost one in 10 (8%) reported ceasing operations for some or all of their business and one in five (22%) said that they would draw on cash reserves in response to higher energy costs, the paper added.

Dhara Vyas, deputy chief executive at Energy UK, said the commission’s report comes with “a sense of urgency”.

“Global instability was a major factor behind these price shocks so it’s sadly evident that we need to be better prepared for a repeat that can’t be ruled out,” she said.

“Ultimately, we need to prevent a repeat by cutting our dependence on volatile fossil fuels through investing in domestic clean power.

“As well as developing our own sources of energy, we need to do much more about how we use these – such as through bold and long overdue action to make our homes energy efficient.”

While the commission warned that there has been too little progress to build the UK’s resilience to future crises, it said the new Government is showing encouraging signs of tackling supply concerns, by pushing for growth in renewables, grid upgrades and carbon capture and storage.

Challenges

Former MP David Laws, who chaired the commission, said: “Our view is that the new Government is now moving in the right direction and it will need to sustain this and do so at scale and pace in order to address the challenges we’ve had on demand.”

He added there is “still much more we need to do” on the demand-side and household support as he cited recommendations outlined in the report.

These included the Government developing a clear strategy for shifting away from fossil fuels, and increasing public investment in home energy efficiency to improve millions of cold, damp, unhealthy homes.

Elsewhere, the group recommended ministers provide targeted and scaled-up support for businesses and energy-intensive industries to decarbonise, and pursue electricity market reform urgently.

To ensure the better handling of a future crisis, the report called on ministers to improve the targeting of support for vulnerable households and businesses who could be hit worst.

The Government should also review regulations to protect consumers from supplier failure and develop an overarching plan to reduce the risk of future crises, including regular stress-testing of the UK’s reliance to price shocks and disruption, it said.

“Future oil and gas shocks seem inevitable, but the UK remains poorly prepared to absorb these,” Mr Laws said.

“Experience in other countries shows that global energy price shocks need not have catastrophic impacts on economies and societies if we take the types of actions detailed in this report.”

The PA news agency has contacted the Energy Department (DESNZ) for comment.