Gas and oil prices have reacted heavily to the start of the Ukraine war on the 24th of February. The large uncertainty on how Russian exports of oil and gas to the EU and other countries would be impacted by the war and potential economic sanctions have put the market into further turmoil.
Prices have calmed down slightly recently after enormous peaks in the first few weeks. However, the energy market, already hit by the energy crisis of last year, is still very vulnerable. This raises the question of how the developments in Ukraine might affect your energy bills.
Will the Russian invasion influence energy bills?
Russia is one of the largest suppliers of oil and gas for the EU. For the UK however, only around 6% of gas and oil is imported from Russia. Nevertheless, UK gas prices are influenced by global wholesale prices of gas, which will likely be higher following the Ukraine conflict. Furthermore, in the UK, around ⅓ of total electricity is generated from natural gas.
Shocks at the natural gas market then often have a similar effect on electricity prices. If gas prices go up quickly, electricity prices often follow the trend and increase as well.
For now, the effects on electricity prices are still limited, however, if the gas prices continue to rise substantially, it is very likely that electricity prices will follow as well.
How does the Ukraine war affect energy prices?
Global crude oil and natural gas prices have been rising steadily since the start of the invasion on Thursday, February the 24th. Especially steep increases were seen at the beginning of March, with oil prices climbing around 30% to $127.98 and natural gas prices in Europe rising up to 200% to €227.20 per megawatt-hour.
Several countries presented measures to decrease dependency on Russian gas and oil. This has led to prices lowering slightly again in the last week. However, they still are very high compared to normal.
|
Commodity |
Price 23-02 |
Price 08-03 |
Price 18-03 |
% Difference |
|
Oil |
$94.05 |
$127.98 |
$107.21 |
+12.35% |
|
Gas |
€88.89 |
€227.20 |
€101.20 |
+12.35% |
What are the consequences for the UK energy market?
The energy market has been recovering slightly after a turbulent period following the energy crisis. The energy crisis saw a huge surge in electricity and gas prices.
Because of the increasingly high costs and the inability to pass on these costs to consumers, many energy suppliers went out of business.
The incumbent suppliers on the market at the moment, apart from Scottish Power do not offer tariffs to new clients. Switching energy supplier or finding a new one is therefore very difficult at the moment.
It is simply not feasible for energy suppliers to take in new clients as they are incurring losses on every customer. Given the uncertainty of the situation in Russia, it is difficult to say for now when the market will reopen again. It could still very well be quite a while before suppliers will start offering tariffs to new clients again.
More than 26 UK energy suppliers have gone bust in the last year. If the situation continues like this, this number could still be rising.
Only the very large companies with large financial reserves will be te able survive. Therefore, in the coming time if you switch supplier, the best choice is often to choose one of the larger suppliers to be sure that your company remains in business.
Something that could be a first step in the reopening of the market is the higher energy price cap announced by OFGEM. The Energy Price Cap has increased by a staggering 54%, meaning that consumers will already be paying significantly higher prices for their energy in the coming months.
This might enable companies to reopen their tariffs again for new customers. However, as the cap was a limit on the price companies could charge, your rates will be significantly higher under these new regulations.
What can I do to limit the increase of my bills?
Despite the situation looking very grim, there are several things that you can do to offset the negative consequences. Some of the options to save on your energy bill, among others include:
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Using energy efficient appliances: Usage of energy efficient appliances in your home can reduce your energy bill by as much as £200. Try to be on the lookout for green eco stickers on products such as washing machines and tumble dryers to make some real savings.
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Using central heating controls: Heating controls can allow you to regulate the temperature and adjust it for each room to be on the optimal level without wasting energy. Also you can turn off hot water when not needed to save on your consumption.
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Installing smart appliances: Appliances such as a smart thermostat and smart lighting can help you save on your energy. Several home automation companies can install systems that allow you to turn off all the appliances with one click on your phone. You can use this to prevent unnecessary energy consumption by your appliances when you are away from home.
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Take cold showers. Not only good for your health but also good for your wallet. Not only do you use less hot water in general, calculations show that you save up to £4 per minute less showering. Given the fact that using cold showers will decrease your shower time significantly, it could be a great way to save on your energy bill.
What will happen in the near future?
Following the energy crisis the energy market was in a rough situation already.The increasing tensions between Russia and Ukraine of late will only make the situation tougher.
As such, energy prices are very likely to remain high in the coming period and your bills will increase vastly under the new energy price cap. However, with some smart usage of your energy, it should not be insurmountable.
Also the UK government has introduced certain schemes such as the 5p fuel tax cut, a £330 tax cut and a 1% decrease in income tax for the basic tax rate, starting in 2024.
Click What will be the consequences of the Ukraine war on your energy bills? To Read More