The invasion by Russia of Ukraine is an appalling act of aggression with terrible loss of life and displacement of potentially the largest number of people in Europe since World War II.
One impact of the aggression is likely to be a significant impact on the UK’s energy supply. Energy – specifically oil and gas – is one of Russia’s key exports into Europe as it supplies much of the continent’s oil and gas.
Major points to consider
The UK does not import significant amounts of gas from Russia, despite its status as the second largest gas producer in the world (contributing 17% to global gas output in 2020). However, the current energy crisis in the UK is being driven by rising global gas prices. Volatility in this market will continue to affect UK energy costs.
- Around 5-6% of UK gas imports come from Russia.
- However, with Russia withholding resources over the last two years, the UK has been exposed to volatile international gas markets – while our supply is unlikely to be affected, the price we pay for gas is, leading to rising energy bills this year.
- Many European nations have agreed that increasing the use of renewable energy is one of the solutions to reliance on Russian gas. The Prime Ministers has confirmed that the UK will ‘cease the dependence on Russian oil and gas that for too long has given Putin his grip on western politics’. The UK will therefore have to reduce our demand for gas or replace it from other sources. In the near-term, our reliance on Liquified Natural Gas (LNG) is likely to increase, but increased global competition for this resource will drive costs up.
Energy bills in the UK are therefore likely to rise sharply throughout this year as a direct result of the conflict in Ukraine and the sanctions imposed on Russian exports.
- The energy price cap in the UK has risen from £1,277 to £1,971 in response to rising gas prices. Gas accounted for at least £500 of that increase.
- Energy UK has warned that the price cap may increase again to £2,400 in October. The conflict in Ukraine has seen these estimates rise to approximately £3,000, again driven by global gas prices.
The UK government has been clear that investment in renewable energy is key to mitigating against price rises. The UK is already a global leader in producing renewable energy – continuing to invest in home-grown energy will shield businesses and households from further price spikes.
- As gas, which generates 40% of the UK’s electricity, still sets the price for all generators, the increase in gas prices is also driving an increase in electricity prices. These costs are felt by consumers and businesses.
- Renewable energy, such as that produced by wind and solar power, is cheaper. Our increasing use of these supplies has seen electricity prices rise at a much slower rate – 54% between April 2021 and April 2022 (gas prices have risen 97% in that time).
What can businesses do?
Since the onset of the energy and gas crisis, the concept of increased energy efficiency has received additional attention as a means of reducing gas (and energy consumption), thereby reducing bills. Reducing the amount of energy you consume on your premises will be vital for businesses in the immediate future. With gas prices set to continue rising, this is likely to be the most effective way of lowering bills for some time.
- Alongside considering switching to a renewable energy tariff, businesses may wish to consider investing in greater energy efficiency on their premises as a way of reducing their energy bills.
- Due to the high cost of gas, it is likely that from April, it will be cheaper to run an electric heat pump than a gas boiler for the first time.
- Other measures such as cavity wall and loft insulation reduce gas demand, saving money on your bills.
- Upgrading a building from Energy Performance Certificate (EPC) band D, the average rating in the UK, to band C, reduces heat demand by an average of 20% per building.
- Upgrading all buildings to band C would cut gas demand by 7% and net imports by 15%.
At the British Chambers of Commerce, we have produced a list of ten things businesses can do now to lower their emissions. Taking steps to improve your energy efficiency will help to do that, while also reducing your operational costs. Further information on energy efficiency measures you may wish to consider can be found below.