The United Kingdom was the first country in Europe to take draconian measures and raise electricity prices for the public for the second time in a year. Other countries in Europe are trying to freeze or curb the rise in payments. However, the United Kingdom cannot afford this luxury. Why is the country with the least dependence on Russian gas in the worst position?
Britain is experiencing one of the worst energy crises in Europe. It has forced the authorities to take a highly unpopular and risky step, announcing an incredible 80% increase in electricity prices for the population starting October 1. And this is not the first price increase in the country.
“Today’s announcement of the price threshold confirmed what many of us have long feared. Despite numerous warnings, the government has stubbornly failed to intervene and ministers must act now to ensure that the cost of living crisis does not become a national disaster,” London Mayor Sadiq Khan said on Twitter.
Finance Minister Nadeem Zahawi said he was “working hard” on measures to support the population after another 80% rise in energy prices, to £3,549 a year.
This is the second price rise for the public in the UK. The first was from April to £2,000. And although the country is far from being a poor country, these electricity prices are too much even for its residents, said Sergey Kondratyev, deputy head of the Economic Department of the Institute for Energy and Finance.
Already now, that is, before the increase in tariffs on October 1, a third of the UK residents are having difficulty paying their electricity bills, the TV channel Sky News, citing the results of an opinion poll conducted by the polling service Ipsos.
The UK’s dependence on Russian gas was initially very low – no more than 5%. However, this very country has such serious problems, which have to be shifted to consumers. Many European countries are trying to control rising prices for the population, so why are the British authorities taking such an unpopular step?
“In fact, for most European countries, dependence on Russian gas does not play a decisive role in the current crisis. Slovakia, the Czech Republic and Finland, for example, were very dependent on Russian gas, but they are in a better position. The more important point is the total dependence of the country on gas in principle,” the expert explains.
According to him in Great Britain the share of gas in the energy balance is very high and in fact there is no reserve generation. For example, in France there are nuclear power stations, in Poland – coal-fired generation, in Germany there are few both nuclear and coal-fired power stations. And Britain was ahead of the rest of Europe in terms of decarbonisation. And this has come back to haunt her.
“Britain has been held hostage by its own energy policy,” Kondratyev says.
First mistake: Britain was too quick to cut coal-fired power stations out of its life. Every closure of coal plants was celebrated by the authorities as a great victory, with “popular” celebrations, videos on YouTube, etc. Those countries that did not get rid of coal-fired generation so radically are now very happy about it.
Second mistake: there has been too much talk in the country about the need for a new nuclear power plant (the old one was shut down back in 2000), but nothing has been done. Kondratyev recalls that during this time of talk about Britain and a new nuclear power plant, two nuclear reactors have already been built in Belarus, one successfully commissioned, and one not in operation only because of geopolitical problems.
The UK has also been proud of its success in terms of developing RES – renewable energy sources. The island nation has been active in developing wind farms, and has set itself as an example. But the wind is on and off: wind power generation has shown in practice that it is not capable of helping Britain in a difficult situation. The drought also hit the UK. London imported electricity from Norway. But the rivers there dried up, hydroelectric power generation dropped sharply, and exports from Norway stopped. The third mistake is to bet too much on renewables, where there is a huge uncertainty factor in the form of weather, and imports.
Finally, London’s global mistake is to bet on liberalising the market and tying gas prices to spot prices,
Kondratyev said. The UK has been the eurozone’s biggest success in this area, too, and has been very proud of it.
But now all those successes have backfired on the country and its people. Gas prices in the European spot markets have reached more than $3,000 and are approaching $4,000 per thousand cubic meters, although the highest demand for the gas has not even reached the autumn-winter peak. And that means one thing – end-user prices are also rising.
“In the UK, and it is common practice across Europe, people sign a six-month fixed-price electricity supply contract with a link to wholesale market prices. People are more likely to opt for fixed payments. The price indexation in the contract is determined based on the dynamics in the previous six months,” says Kondratyev. This is why the UK has had its second tariff increase in a year. LNG prices have only been rising for more than a year.
“The only support measure that the UK has is targeted subsidies for the poorest citizens. The funds for these subsidies come from a levy on the super profits of oil and gas companies,” says the expert.
“By comparison, France has de facto frozen electricity prices for household consumers. Not only because in France it is handled by a state-owned company and in the UK by private companies. The main reason is the structure of generation.
France has retained nuclear plants, and they allow for a relatively constant tariff. Of course, uranium prices on world markets have also risen over the last year and a half, but not as much as gas prices. And in the UK, it is gas generation that is the mainstay,” says Kondratyev.
In other words, we can say that the residents of France are saved from a sharp increase in utilities in the current situation by nuclear power plants, Poland – by coal-fired generation, Germany – by both. Although Germany is partly in the same trap as the UK because it has followed London in its desire to get rid of coal and nuclear power.
“To say that the rest of Europe is in the same trap as the UK is probably not an option. It will be hard for all of them, but it will be hard in different ways”, concludes the interlocutor.
Olga Samofalova, VZGLYAD
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