Looking Ahead At Energy Prices In 2022!

Pent-up demand, tight supply, green policy and lousy timing made a perfect storm for rocketing energy prices in 2021, which now we hear could take a further six months to calm down.

Energy prices soared in Q3 of 2021, with natural gas and coal prices reaching record highs amid supply constraints and rebounding demand for electricity.

The World Bank’s latest Commodity Markets Outlook forecasts that prices will remain at high levels in 2022; however, they will decline in the latter part of 2022 as supply improves. Saying that additional price spikes may occur in the near term with meagre stocks and supply bottlenecks.

Why is Europe particularly vulnerable?

Europe is particularly at risk due to low stocks and a high dependence on natural gas. In recent weeks, energy prices and especially natural gas prices, have surged sharply, prompting the UK to reactivate coal-fired electricity generation. This has caused carbon prices to spike in turn.

“The surge in energy prices poses significant near-term risks to global inflation and, if sustained, could also weigh on growth in energy-importing countries,” said Ayhan Kose, Chief Economist and Director of the World Bank’s Prospects Group, which produces the Outlook report. “The sharp rebound in commodity prices is turning out to be more pronounced than previously projected. Recent volatility in prices may complicate policy choices as countries recover from last year’s global recession.”

What does this mean for UK bill payers?

Households could see energy bills rise by a further 30% next year, say analysts at research agency Cornwall Insight. They have predicted more volatile gas prices, and the potential collapse of additional suppliers could push the energy price cap to about £1,660 in summer.

The forecast is approximately 30% higher than the record £1,277 price cap set for winter 2021–22, which started at the beginning of October.

What is the price cap?

Energy regulator Ofgem reviews the price cap once every six months and changes it based on several factors, including the wholesale cost that suppliers have to pay for their energy, cost of policies and operating costs.

In a statement to the BBC, Ofgem acknowledged it was a “worrying time for many people….

The regulator added: “The energy price cap covers around 15 million households and will ensure that consumers don’t pay more than is absolutely necessary this winter.

“However, if global gas prices remain high, then when we update the price cap, unfortunately, the level would increase.”

What can low-income households do?

Any customer worried about paying their energy bill should contact their supplier to access the range of support available. Many suppliers have a Priority Services Register (PSR) designed to give vulnerable customers access to the help they need.

Can we avoid such price surges again?

As we transition to a net-zero economy, there have been concerns about the intermittent nature of some renewable energy, such as wind power. These concerns had arisen during a remarkably still September when very little wind energy was generated.

This highlights the need for reliable electricity generation such as solar power and low-carbon sources such as hydropower or nuclear power.

The need for energy independence

Countries like the UK can benefit from accelerating the installation of domestic solar panels and reducing our dependence on fossil fuels.

It’s time to protect your future

By installing low carbon heating like solar panels or heat pumps, households become energy independent and unaffected by volatile global markets.

In the recent Heat and Buildings strategy, the UK government set out its plan to incentivise homeowners to install low-carbon heating systems. Households will benefit from £5,000 government grants through the £450 million Boiler Upgrade Scheme to help install low-carbon heating systems.

We are expecting an announcement any day from the government about the Green Homes Grant replacement scheme. This program was to encourage homeowners to install low carbon heating, insulation and other energy efficiency measures.

To hear about financial incentives for solar, drop us a line at info@efficienthomes.org and we’d be happy to chat through your options.