Gas crisis costs UK £1,000 for every adult since Russian invasion

The total spending on gas could have been up to £70bn, the amount that the Government spent on the pandemic furlough scheme. [2]

The Russian invasion pushed up wholesale gas prices which are currently around three times higher than before the current gas crisis.

The IMF has said that British households have been the worst hit in Western Europe because of our high dependence on gas [3] – the UK uses gas for generating 40% of its electricity and for heating 85% of its homes, which are also amongst the least energy efficient in Europe.

Commenting on the analysis, Dr Simon Cran-McGreehin, Head of Analysis at ECIU, said:

“As the IMF has pointed out, the energy crisis hit UK households harder than those in other western European countries because as a nation we’re incredibly dependent on gas. The price of gas is largely set by international markets, so the only way to protect yourself is to use less.

“The onshore wind ban has been one of the barriers to this. We’re also running behind places like Sweden, Poland and Estonia on installing electric heat pumps. As renewables and heat pumps proliferate, less imported gas is needed, which in turn benefits our balance of payments and energy security.”

The analysis uses Ofgem’s ‘nominal supplier’s hedging strategy’ for price cap calculations. Extrapolations based on BEIS data were made to estimate non-domestic gas costs. Although prices of gas contracts have fallen in recent weeks, the prices paid by customers are still dominiated by trades made last year at very high prices. Furthermore, analysts are still wary of future market volatility. [4]

These gas cost impacts would have been lower if the UK had been further ahead with key net zero policies (including energy efficiency, onshore wind and heat pump deployment), which could have saved a typical household up to £1,750 in 2022. [5]

ECIU’s Winter Power Tracker shows that renewables have generated slightly more electricity this winter than gas power stations have. [6] These renewables leave the UK less exposed to gas markets than it might otherwise have been and less vulnerable to inefficient gas power plants setting ‘marginal prices’ for electricity above the actual costs of cheaper generators like wind and solar. Furthermore, renewables with ‘Contracts for Difference’ (CfDs) pay back some of the high wholesale prices seen during the crisis – if a similar crisis happened in 2030 when the UK has more cheap renewables, the annual savings to bill payers could be around £34bn. [7]

Previous ECIU analysis has shown the UK lagging behind European countries such as Poland and Estonia in deploying heat pumps [8].

With the UK importing around 55% of the gas that we use, the higher gas prices had a negative impact on the UK’s balance of trade, to the tune of roughly an extra £30bn over the past 12months . Furthermore, were it not for renewables providing around 40% of the UK’s electricity, gas power generation could have been twice its actual level, such that gas imports would have been almost 60% higher, worsening the UK’s balance of trade by a further £20bn over the past 12months. [9]