I have heard energy is generated from solar/wind/coal in the UK and this is where the most profit comes from but due to privatisation rules, companies cannot use this money to help consumer bills. Is this correct. I heard there is also a lot of energy piped in?
In: Economics
Primarily due to some short-sighted decisions which have created an overreliance on natural gas and left the UK more vulnerable than most to the effects of Russia’s Invasion of Ukraine
Just a few years ago, as much as 50% of the UK’s grid energy came from coal. There was a big big push to decarbonise, and coal is really dirty, so the UK started closing its coal plants and replacing them with gas ones (and some wind farms). It managed to reduce coal from 50% of the energy mix to 0% within just 6 years, which is pretty impressive, and combined with building the biggest offshore wind farms in the world, was pretty admirable in the name of climate action
However, that meant that natural gas was now the only major fossil fuel being used for grid energy in the UK, and it was incredibly reliant on it. There aren’t many countries where this is the case. Generally, other countries will have more diversification in their fuels
Then you need to add onto this that the UK uses gas for most things in the home too. Home heating, hot water, and cooking are generally all done with mains gas supply, whereas in other countries at least one of these things might be electric
So the UK uses a LOT of natural gas. In proportion to size, it uses more than almost any other country. So where does it get it all from? Well, actually, around half of it is produced domestically. The other half comes from abroad, mainly from Norway. Very very little ever came from Russia
So why did Russia’s invasion have such a big effect if the UK doesn’t even get any gas from them? Well, gas production in the UK is privatised (like in many countries), meaning that the companies who produce it can choose to sell it to the highest bidder globally. That means that when global gas prices rose dramatically due to the Russian invasion of Ukraine, the UK was still affected by it, despite not getting any gas from Russia and actually producing most of it themselves. Privatised gas production isn’t unusual, but it is unusual for a country that’s so reliant on it. You could nationalise it or impose an export ban, so that gas produced in the UK can’t be sold elsewhere, but this would have significant political and business consequences
This is compounded by the UK’s lack of gas storage capacity. Most countries that use a lot of gas have large reserves, which they can fill when the price is cheap and fall back on when the price is high, to ride out price spikes and events like the invasion. Unfortunately, the UK chose to close its only major gas storage facility in 2017 (during the transition from coal to gas!) due to maintenance costs. That meant they couldn’t ride out big price spikes and felt every little bump of volatility in the global markets. So when the invasion and energy crisis happened, this was bad news for the UK
So all in all, it’s just many short-sighted decisions which meant the UK needed gas more than other countries and was more exposed to the effects of the global market
TL;DR;
* lack of fuel diversification due to transition from coal to gas, creating overreliance on gas
* greater demand due to home heating, hot water and cooking all using primarily gas, exacerbating overreliance on gas
* privatisation of gas production means that the price of even domestic gas is determined by global markets
* lack of gas storage capacity, due to closing the only major facility in 2017, leaves inability to ride out price spikes and volatility of global markets
* Russian invasion of Ukraine creates energy crisis and highest gas prices in decades (maybe in history)
Interesting tidbit: the US has managed to get around the issue of an export ban by essentially deliberately limiting its logistical export capacity. This means you’re perfectly allowed to export gas from the US, but good luck doing so, because there isn’t enough export capacity for everyone. That means companies don’t bother trying to export it and just sell it domestically instead, making supply far greater and demand far lower, lowering the price and insulating the US from the impacts of global markets. So they have achieved the same effects of an export ban without much of the blowback
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