Weekly News Review - 9th January 2023
Energy bill support for firms expected to be halved
Chancellor Jeremy Hunt is expected to half the amount of energy bill support available to businesses from April. On Wednesday, Mr Hunt told business groups that in order to protect public finances from volatile energy markets support would be at a lower level after the existing package of support expires.
Businesses are not covered in normal times by an energy price cap, like the one which limits the amount suppliers can charge households for each unit of energy. However, after energy prices spiked last year, the government introduced the Energy Bill Relief Scheme in October which provided a lifeline for many firms that risked going bust without the support.
The new scheme is expected to run for 12 months to the end of March 2024 with further details announced next week. An announcement on energy bill support was initially due before Christmas but this was postponed until the New Year. It was understood that the delay was due to the complexity involved in separating out different sectors so support was only provided to those most in need.
The delay led to frustration amongst business groups with Kate Nicholls, chief executive of UK Hospitality, describing it as having “a corrosive effect on business confidence”. She added: “A steep rise in energy costs, coupled with other inflationary pressures, staffing challenges and rail strike disruption, could prove fatal for many.”
Pure Gym Chief executive, Humphrey Cobbold, said the industry “desperately” needed “clarity from government” on whether the support will be extended. “Each day the decision on future energy support is delayed the more businesses will face permanent closure,” he said.
“Those operators with more energy intensive facilities, like pools, spas and saunas facilities, are particularly vulnerable, and sadly it’s possible we might see some facilities limit opening hours or have to close their doors permanently unless they receive much-needed support.”
Warm winter may lower energy bills later this year
Following the warm weather experienced across Europe over the past few weeks, forecasts are suggesting that energy bills could fall later this year. However, bills will still rise for households in April following the reduction in government support which will see a typical bill rise from £2,500 to £3,000.
Gas and power wholesale prices have been falling since mid-December as a result of above seasonal average temperatures and high gas storage levels across Europe. As a result, energy consultancy Cornwall Insight are forecasting that a typical bill could fall to £2,800 in the summer.
This level of reduction would mean that household energy bills would again be determined by Ofgem’s price cap with the government’s Energy Price Guarantee becoming largely redundant. This would help to lower the cost of the scheme to UK taxpayers. Chancellor Jeremy Hunt said on Wednesday that the scheme had so far cost an “unsustainably expensive” £18bn.
Craig Lowrey, principal consultant at Cornwall Insight, said: “We must remain cautious as the government has essentially been underwriting a volatile wholesale energy market – one which is likely to remain unstable throughout the year.”
“Even if energy prices continue at current levels – which is a big if – the costs to the government over the full period of the Energy Price Guarantee are still contributing to government borrowing and will ultimately fall at the feet of consumers in the form of higher taxes.”
Martin Young of Investec bank is expecting bills to fall even further with their price cap forecast to fall to £2,640 in July. However, Young warned that energy bills would remain higher than historic levels with the price cap this time last year at £1,277.
UK sets new record for wind power generation
A number of UK wind generation records were broken in 2022 as the amount of onshore and offshore wind farms continued to increase. According to National Grid’s electricity system operator (ESO) wind generation reached a new peak of 20.9GW on 30 December. This beats the previous record of 19.9GW set in May 2022, when the ESO had to ask some turbines in Scotland to shut down as there was not enough storage capacity on the network.
The ESO also announced a new record for the share of electricity from zero carbon sources, as renewables and nuclear provided 87.2% of generation at one point last year. Across the whole year renewable and nuclear generation provided more electricity to the grid (48.5%) than gas and coal (40%).
February turned out to be the windiest month with wind supplying 41.4% of UK demand and for five months of the year (February, May, October, November and December) more than half of the power generated came from zero carbon sources.
Wind generation was the second largest source of electricity in the UK last year supplying 26.8%, behind only gas at 38.5%. The increase in wind generation over the past decade has helped to reduce the use of coal-fired power stations with coal supplying just 1.5% of demand in 2022 compared to 43% in 2012. Nuclear power’s share of generation fell to 15.5% following the closure of two power stations last year.
There is currently 15GW of onshore wind and 14.2GW of offshore wind installed in the UK with another 6.1GW of offshore wind currently under construction. The development of onshore wind should pick up in the coming years as Rishi Sunak is expected to overturn the de-facto ban on new onshore wind projects which was introduced by David Cameron in 2015.
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