Analysis by Imperial College London adds to concerns about more households being pushed into fuel poverty
Last modified on Thu 2 Sep 2021 01.01 EDT
Household energy bills are to rise after prices on the UK’s wholesale electricity market soared to a record high last month, furthering concerns about more families being pushed into fuel poverty this winter.
The electricity market price passed the £100 a megawatt-hour mark last month for the first time since the market was formed in 1990, according to analysis by Imperial College London.
The average market price reached £107.50/MWh, up 14% on July, and well above the previous record of £96/MWh recorded in the run-up to the 2008 global financial crisis.
Dr Iain Staffell, a senior lecturer at Imperial, and the author of the report, said the electricity market surge would suggest another increase to home energy bills if these prices were sustained.
Last month the industry regulator Ofgem announced it would lift the maximum cap on default energy deals for the coming winter by more than 12%, after a sharp rise in the market price for gas and electricity.
As a result, 11m households with direct debit bills will be asked to pay an average of £1,138 for a dual-fuel energy bill, an increase of £139. For another 4m households that use prepayment meters, the average bill will climb from £1,156 to £1,309.
The sharp increase is expected to push about 500,000 households into fuel poverty this winter, according to campaigners, and has reignited calls for a social energy tariff priced below the cap.
Ofgem will review the energy markets from August to January to determine where the price cap should be set from next April, which could lead to another sharp increase in bills if record electricity and gas market prices continue.
“This will filter through into household bills, and there is not a lot we can do in the short-term as Britain is particularly exposed to fossil fuel price swings,” Staffell said.
The report, which was commissioned by the energy company Drax, suggested a boom in global gas prices was responsible for driving up UK wholesale electricity prices to record levels. Staffell said the surge in post-pandemic energy demand across the global economy may have been compounded by the impact of the climate crisis on global weather patterns.
A particularly cold winter across Europe and Asia left global gas storage levels depleted this year, while in Brazil dry weather forced the country to be more reliant on gas power plants because its hydroelectric dams were not able to produce as much electricity.
In the summer, much of the northern hemisphere faced exceptionally hot weather – with “heat domes” forming over North America, Greenland, southern Europe and Siberia – which fuelled increased demand for gas power plants to generate electricity for air conditioning.
“Ultimately, Britain needs to reduce its reliance on fossil fuels to be spared the effects of price swings,” the report said.
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