Energy prices predicted to remain high and solar market expected to continue growth
Soaring energy bills over the past 18 months have contributed to record double-digit inflation and a cost-of-living crisis. The surge in energy prices has now eased and we will start to feel some relief when that translates to lower energy bills.
Centrica chief executive Chris O'Shea said while he believes the worst of the energy crisis is over, risks remain. O'Shea said prices have decreased from the rise caused by the Russian war, but are still higher than the long-term average. "I think the first act of the crisis is over," he said. "I think what we've got to remember is the energy prices had more than doubled before Russia invaded Ukraine. Now, prices are back down to pre-invasion levels but they're still two and a half times the long run average."
Jonathan Brearley, head of Ofgem, also warned that bills should not be expected to return to pre-crisis levels until at least the middle of the decade.
Looking back
For years, wholesale gas prices in Britain were steady. This changed in 2021, with economies reopening as the Corona pandemic eased and Russia starting to squeeze supplies as they cut natural gas supplies to Europe in the run-up to its invasion of Ukraine. Prices then surged after Russian troops invaded Ukraine, by as much as 11-fold by August 2022.
Source: Financial Times
Looking forward
Energy suppliers buy gas in advance and forward gas prices remain above 110 pence per therm for the next three winters, before falling back to 92 pence in 2026, according to commodity analytics company ICIS. These levels reflect continued uncertainty about supply and demand in Europe and tight gas margins globally. In turn, gas prices largely dictate the cost of electricity due to the critical role of gas-fired power stations in Britain.
Centrica recently announced it was doubling the amount of gas stored in its Rough storage facility off the coast of Yorkshire ahead of this winter. Despite the extra storage, Chris O'Shea said there was a danger that the UK risked being complacent about the resilience of the country's energy supplies which were still vulnerable to external shocks. "I think that there's a danger that we get complacent because last winter was okay and because prices are quite stable now," he said. "But when we had trouble between the Wagner group and the Russian military […] we saw energy prices go up by about 20%. Chinese economic activity at the moment is relatively low. If that starts to pick up we'll see more demand for gas in the form of LNG [Liquified Natural Gas], then we'll see European gas prices go up so there could be more volatility to come."
Forecasting wholesale energy prices for more than four years out is difficult, but analysts agree demand for electricity will rise. Recent modelling by consultancy Cornwall Insight predicts electricity prices will remain above £100 per megawatt-hour “until 2030 and likely beyond” — double historic norms.
Source: Financial Times
Balancing electricity supply and demand, which has become more complicated due to the growing proportion of intermittent renewable power in the UK’s energy mix has also contributed to higher costs. The electricity grid will require significant investment in the years ahead to connect the increasing sources of renewable energy and handle the anticipated increase in demand as electric cars and heat pumps become more common.
Solar soars
A twist on the popular proverb: “The best time install solar was yesterday, the second best time is today.” The business case for installing solar solutions remains strong as a viable option. The UK solar energy market is expecting a Compound Annual Growth Rate (CAGR) of more than 5% from 2022 to 2027. Factors that drive commercial adoption of solar energy generation and storage solutions include:
expense management - volatile energy prices predicated to remain high
the need for decarbonisation
operationally being in control of one’s own energy supply
government policies
decreasing dependency on fossil fuels
declining costs of solar technologies
We’ve been advocates for the value and environmental benefits that solar provides since 2006. Contact us to discuss solar as a solution for your business – we’d love to hear from you.
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