Commission: UK ‘dangerously underprepared’ for future energy crisis

The Commission also found that:

• Poorly-targeted support schemes and the slow pace of improving home energy efficiency meant that the poorest households suffered, and pushed up the overall cost of the crisis for the UK, driving up national debt;
• The impact on some vulnerable households and businesses has been ‘catastrophic’: nine in ten households cut back their energy use, the number of households in fuel poverty reached around 7.5 million, and GB households owe around £3.5 billion to energy companies;
• Almost one in ten firms (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 energy crisis drove the wider cost of living crisis and stifled economic growth;
• Too little progress has been made since the start of the energy crisis to reduce the UK’s reliance on gas by insulating homes and scaling up the installation of heat pumps.

The Commission found that the UK needs to accelerate its low-carbon transition to improve its resilience to another energy crisis. It recommended the UK should:

• Develop a clear strategy for shifting away from fossil fuels, particularly gas;
• Increase public investment in home energy efficiency to improve millions of cold, damp, unhealthy homes;
• Introduce strengthened energy efficiency regulations for the private rented sector and implement the Future Homes Standard for better quality new builds;
• Accelerate rollout of electric heat pumps via the Clean Heat Market Mechanism and set out a plan for transitioning away from gas heating;
• Continue to accelerate progress towards clean power by scaling up diverse and flexible technology, being ambitious on renewables and improving grid infrastructure and storage capacity;
• Provide targeted and scale-up support for businesses and energy intensive industries to decarbonise;
• Pursue electricity market reform urgently.

In addition, the Commission made recommendations to ensure better handling of a future crisis:

• Improve targeting of support for vulnerable households, including data sharing and matching, and urgently preparing for the need for support rising this winter;
• Introduce separate, targeted and scaled-up support for energy intensive industries and other businesses;
• Review regulation to protect consumers from supplier failure;
• Develop an overarching plan to reduce the risk of future crises, including regular stress testing of the UK’s resilience to price shocks and disruption.

Commenting, the Rt Hon David Laws, who chaired the Commission, said:

“The UK has experienced regular energy price shocks over the last 50 years, which have damaged economic growth and hit both households and businesses. Future oil and gas shocks seem inevitable, but the UK remains poorly prepared to absorb these. Our report shows that the country remains highly vulnerable to future energy shocks and needs to make three big changes to protect itself.

"Firstly, we need to further accelerate the move away from coal, oil and unabated gas, and shift much more to home-grown renewable sources of power - with adequate storage back-up. Here the new government is giving a welcome lead in areas such as solar power, onshore wind and the stepping up of clean energy investment.

“Secondly, we need to reduce high energy demand, for example from our poorly insulated housing stock. Progress on home energy insulation has simply not been good enough, and there is a need for new measures to meet the challenge.

“Finally, we need a much more efficient and targeted system of energy support for consumers and businesses, so that money goes to those who need assistance, when they need it. Past and present support has been and is badly and wastefully targeted - with those in most need not getting the help they deserve.

“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.”

Gillian Cooper, Executive Director of Partnerships and Advocacy at Citizens Advice said:

“Underpreparedness and missed opportunities helped drive the energy market crisis. Sluggish action on green upgrades, supplier failures, poor practices like forced prepayment meter installations, and inaction on targeted bill support has left millions of households feeling the devastating impacts of the crisis firsthand.

“Our advisers have supported people who’ve fallen behind on their rent or mortgage payments, and risked their health by keeping their heating and hot water use to the bare minimum. With the cost-of-living crisis still affecting millions, and energy bills now two thirds higher than their pre-crisis levels, the need for action is urgent.

“It’s vital lessons are learnt from the crisis, and there’s a significant opportunity to make lasting changes to make sure the same mistakes aren’t repeated. Targeted bill support must be brought in to make sure households are able to keep their heads above water this winter and beyond, and to ensure that no one is left behind in the transition to net zero.”

Louise Hellem, Chief Economist at the CBI said:

“The energy crisis sent a shock wave through the economy that impacted nearly every business in the UK, with industry, small businesses and high street firms particularly impacted.

“The challenge of rising costs put many viable businesses into distress and, for many more, high price volatility eroded the conditions for business investment, with almost a third of CBI members at the time saying that they were delaying or halting investments in net zero measures as a result of energy costs.

“Addressing why the UK was particularly vulnerable to price spikes is vital not only to prevent serious consequences for consumers, but its impact on the wider economy.

“Accelerating the UK’s journey to net zero is fundamental to boosting our energy resilience, as well as a huge opportunity to boost sustainable growth. It will require decarbonising energy markets, increasing flexibility and improving energy efficiency, and this Commission’s recommendations provide a blueprint to build resilience which the government should work with business to deliver.”

Adam Scorer, Chief Executive at National Energy Action said:

“The Government support put in place at the peak of the energy crisis was both huge and necessary, but it will not avoid a future crisis or help those for whom decent levels of heat and power was, is, and will continue to be, unaffordable.

“We risk important lessons fading away. Ensuring that we can target support to those most in need and insulate fuel poor homes are at the top of that list. The risk of future crises is real. They will hit hardest those less able to withstand price shocks. This report is an important statement of the necessary steps that can make the UK more resilient to volatile energy prices and at the same reduce the shocking level of fuel poverty."

Dhara Vyas, Deputy Chief Executive at Energy UK said:

“The energy crisis continues to cast a long shadow with bills still significantly higher than before its onset and customer debt now at a record £3.7bn. The spike in energy prices exacerbated existing inequalities and also had wider economic effects pushing up inflation and the cost-of-living - hitting not just households but businesses still fragile after the pandemic.

“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. Emergency last minute interventions are costly and unpredictable and can leave us too reliant on good fortune.

“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.

“It’s also essential that industry and government work together on ways to get targeted support to those who need it most, which will not only get help to people who require it now but also shield customers in the event of future price shocks.”

Jim Watson, Director of the UCL Institute for Sustainable Resources said:

“This is not the first time the UK and other countries have been affected by a sustained energy price shock. The recent crisis is different, however. It affected gas prices rather than oil prices. Given the importance of gas for homes, businesses and electricity generation, the UK was particularly vulnerable to its impacts.

“This report provides a timely analysis of the immediate effects of the price crisis, and the responses by government, the regulator and the industry. Crucially, it also seeks to learn lessons from the past two years, and to recommend actions that would reduce the UK’s vulnerability in future.

“The long-term solution is to shift away from fossil fuels. To achieve this, the report emphasises the need to improve energy efficiency and invest more rapidly in non-fossil sources of energy. However, it is also important to manage the decline of fossil fuels in an equitable way - especially gas. A comprehensive plan is required to achieve this that covers all stages of the gas supply chain: from offshore production in the North Sea to the use of appliances in homes.”