This week, the news has been flooded with articles on rising electricity prices. Why? Because we’re facing a gas shortage in the UK and energy costs have soared as a result.
But what has caused this gas shortage?
Well, since January, the price of natural gas in Europe has nearly quadrupled. This has been driven by a combination of factors including: the post-pandemic economic recovery; low storage levels due to a cold winter; major suppliers (like Russia) not increasing production; and strong competition for liquified natural gas from China, who are stockpiling for winter.
In addition to the above, the UKs problem is even more acute:
- Firstly, electricity prices were already rising due to the lowest North Sea wind speeds in 20 years;
- Secondly, there was a fire which caused the closure of an interconnector that transfers electricity between France and England; and
- Finally, due to a decision taken by Centrica in 2017 to close their major gas storage facility, the UK does not have the facility to stockpile.
So, what’s the solution?
If there were ever a reason to flick the switch on renewables, this would be it! Europe has very clear energy ambitions and a strong commitment towards a low-carbon future, however, we’re only halfway there.
2020 was the first time that renewables became the eurozone’s main source of electricity, but the shift hasn’t been fast enough to avoid the fallout from spiralling natural gas prices. And going forward, this problem is likely to get worse before it gets better.
Source: Europe’s Power Sector in 2020, Ember and Agora Energiewende, 25th January 2021
As we continue the move towards decarbonisation, the reliance upon natural gas as the bridge between coal and renewables will remain. The solution is for countries to accelerate their plans in the renewables build out. However, this doesn’t end with more generation assets; we also need to extend enabling infrastructure and improve the flexibility of the grid.
Renewables are intermittent; we therefore need to invest more in utility-scale storage and demand management, so that when the sun doesn’t shine, or the wind doesn’t blow, we’re still able to use renewable-generated electricity.
This development will require funding, which is why we’re working with managers who can offer solutions across all aspects of the renewables space, providing our clients with an attractive investment opportunity with the potential to contribute to real-world decarbonisation. To find out more, please get in touch: jaspal.phull@redington.co.uk
Unless indicated, these are the views of the author’s and may differ from those of the firm.
