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September 28, 2021

UK must reduce dependence on fossil fuels to avoid future energy crises

The UK is over-reliant on natural gas and will face energy shocks in the future if it does not diversify its energy supply and storage. Natural gas accounted for just over 40 percent of the country’s electricity generation in the past year and 86 percent of homes use it for heating.

By GlobalData Energy

The UK is over-reliant on natural gas and will face energy shocks in the future if it does not diversify its energy supply and storage. Natural gas accounted for just over 40 percent of the country’s electricity generation in the past year and 86 percent of homes use it for heating. While the UK’s coal phase-out has so far been successful, the current reliance on gas has left homes and businesses exposed to price rises. The current rise in gas prices – over 400% year-on-year – has sent shockwaves through the country.

A myriad of factors has contributed to the present price crunch. A shortage of natural gas, due both to low production in countries such as Norway, and high demand in Asia, began to drive up prices in early September. Other factors, such as a fire at the IFA interconnector cable between France and UK, and unfavorable wind conditions, have exacerbated the situation. These prices are being passed onto consumers, with Citigroup estimating that end-users will be hit with a 20% price rise.

The UK’s attempt to increase competition in the energy sector has backfired. Energy companies have been under stress since August as prices have soared and smaller companies have collapsed as a result. These are Avro Energy, Green Supplier Limited, Utility Point, People’s Energy, PFP Energy, MoneyPlus Energy, and HUB Energy. These suppliers do not possess the bricks and mortar required to actually generate and store electricity, and the lack of hedging has left them at risk.

It doesn’t have to be this way. The UK has overlooked investment in energy storage and is now paying the price. The UK’s largest gas storage facility, Rough, closed in 2017 and was not replaced, leaving the UK with under 1% of Europe’s gas storage capacity. This has made the UK increasingly reliant on imports of natural gas from overseas. Increased investment in nuclear power could also improve the situation, by providing reliable, low-carbon energy, but large up-front costs and long lead times keep politicians averse.

Storing energy after it has been generated will help to prevent shocks to electricity prices. The UK must step up investment into such solutions, such as subsidizing the proliferation of lithium-ion batteries into homes. Charging said batteries when electricity is cheap will help to reduce prices, and charging them while the energy is not as carbon-intensive will also help to reduce emissions. Energy storage also makes for a more resilient grid, as batteries can be switched on quickly in the case of demand spikes.

Dealing with demand spikes is important. Electricity generators use gas to deal with spikes in demand as gas turbines can be turned on and off quickly, as compared to wind turbines which are only effective when it is windy. In fact, the UK has experienced some of the least windy months since the 1960s, which has increased demand for gas and drove up prices. If batteries could be charged while it is windy, and discharged when it is not, then reliance on gas could be reduced.

Energy storage is a rapidly developing theme and it will be a key part of the energy transition. As the industry body, Energy Storage Network says, storage needs to be developed to avoid volatility. Without proper investment in energy storage technologies, future energy crises will be inevitable.

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