OPINION: If the energy sector wanted to highlight its importance in the run-up to the United Nations' COP26 climate summit, what better way than a supply crisis?
The UK government is facing a consumer storm over rocketing natural gas and electricity prices ahead of the climate talks in Glasgow.
Some power suppliers teeter on bankruptcy while many customers cannot afford to pay their bills, and fears of blackouts this winter have grown.
There is even wild talk of Christmas being “cancelled” as fertiliser plants that depend upon gas are shutting while food processors and turkey farmers suffer knock-on effects.
So why are energy markets so volatile — leaving energy security so vulnerable — and what role has the energy transition played in the crisis?
The causes are multiple, but this is a European problem as much as a British one.
The interconnectedness of the modern global energy system is evident: As China and Russia rebuild their gas supplies they are diverting potential liquefied natural gas and piped gas shipments away from the UK and Europe.
Prices have rocketed, with Intercontinental Exchange-traded October UK natural gas futures settling Monday at nearly £1.90 ($2.59) per therm, 400% higher than a year ago.
Importance of energy policy
The whole storm highlights the importance of getting energy policy right, especially when trying to pivot away from fossil fuels in a bid to tackle global warming.
UK supplies of gas used in electricity production have tightened, partly due to longer than expected maintenance on key North Sea infrastructure.
To make things worse, the Interconnexion France-Angleterre electricity interconnector from France has been closed after a fire at National Grid’s Kent site.
Some of the UK’s ageing nuclear power plants have been down for repairs at a time when only a single new one, Hinkley Point, is being built.
Meanwhile, old carbon-heavy coal plants have largely been phased out in a bid to meet climate targets.
And the country’s growing wind power output has failed to meet expectations due to periods of calmer weather.
Five smaller UK energy suppliers have gone out of business as they struggle to cope with volatile prices and their own lack of hedging.
Companies seek solutions
Big companies such as E.ON are now urging the UK Business Secretary Kwasi Kwarteng to step in and provide state aid to keep the sector afloat.
They want “green” tariffs, which subsidise renewable power, switched from customer bills to general taxation and a “bad bank” set up to take on debts of struggling domestic energy users.
This perfect storm certainly demonstrates the lack of resilience inside the power system: A decision was made in 2017 to gradually run down and close the last big UK gas storage facility at the Rough field in the North Sea.
The answer to the energy crisis cannot be to junk a move towards lower-carbon energy at a time of growing concerns about meeting climate targets.
To solve the problem, however, governments will need to put a lot more care, time and money into energy, especially overseeing the transition.
Given its importance to the economy and consumers, energy needs to be centre stage — but it should not need supply chaos to get there.
(This is an Upstream opinion article.)