Business Energy Broker
Price increases in the energy market have made headlines over the past couple of weeks but how could energy efficiency provide supply security?
The energy market has gained the serious attention it deserved over the last couple of weeks due to the skyrocketing prices within the wholesale market. The unprecedented price increases are due to a mixture of different accumulating factors. Supply and demand fundamentals have been affected as many businesses have reopened to full capacity and caused strong demand growth. Meanwhile, supplies have been stretched thin due to storage, weather and political-related factors.
These increases have pressured the smaller energy suppliers who do not or cannot buy large volumes from the wholesale market in advance. Therefore, these suppliers were buying at a loss for their customers while limited to how much they charge due to Ofgem’s price cap. As a result, many of these smaller energy suppliers were forced to cease trading.
Over 1 million customers have been affected by their energy supplier collapsing and have been assigned to another supplier under Ofgem’s policies. However, many consumers fear the effects that an increase in their energy bill will cause on their financial situations. Furthermore, they may also affect consumer confidence in the industry to provide a quality, stable service while protecting them from unfair increases.
While the price cap has succeeded in limiting consumer bills, it has affected the smaller suppliers who could not afford to take these losses. As the market continued to rise supplier losses increased with the margin between the price cap and wholesale price.
If we focused effort on limiting consumption, the consumer would see significant price reductions while having the price security provided by the price cap. By limiting consumption, many of the collapsed suppliers may have been able to continue trading as they could have bought lower volumes and reduced their losses if any.
Government policy is necessary to achieve a significant reduction in consumption by customers and therefore increase energy security which has caused the recent price increases. It is especially relevant to the UK as we are a net importer and cannot generate enough supply to meet demand without the imports from local neighbouring countries.
Energy efficiency is the key component required to achieving a significant reduction in consumption, consumer bills and increasing energy security. Additional pressure will rise as we approach our net-zero goals and can no longer fall back on fossil fuels to meet demand. This is highlighted in Renewable Energy Security at Risk in Extreme Weather Conditions
Why Does it Matter When and How We Consume Energy? Also highlights the importance of changing the way we consume energy.