Ofgem (Office of Gas and Electricity Markets), a UK government regulator, announced today the energy price cap is set to increase by a record 54%. While the regulator states it "knows this rise will be extremely worrying for many people", the increase was seen as necessary as the current level does not reflect the unprecedented record rise in gas with wholesale prices increasing 4-fold in the last year.
The price gap is meant to track wholesale energy costs and is updated twice a year. It is intended to prevent companies from making excessive profits, and ensure customers pay no more than a fair share for their energy. As has been widely reported, rising energy costs have led to a number of UK energy suppliers going under, and customers being moved to new suppliers to ensure continuity of service. According to Ofgem, 29 energy companies have exited the market or been put in special administration affecting around 4.3 million domestic customers.
While Energy Transition is used to describe a change to the energy supply, the effect of increasing gas prices emphasizes the era of energy supplied from only renewable sources may not yet be here. Major energy associations, such as the IEA, have already reported the likely need for conventional energy sources such as oil and gas to meet the world's increasing energy demand.
However, ambitious net-zero targets and oil and gas forming a part of the energy mix need not be mutually exclusive. Investing in CCUS to capture, use and/or store carbon emissions, electrification to decarbonize assets, and other technologies can reduce the carbon impact of this energy supply. While scaling up renewables such as wind, solar, and others is needed, this announcement highlights a step-change is not possible in the short term. Improving existing technology through innovation may allow for a gradual transition while ensuring climate targets are being met.
The increase is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year.
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