The long-term sustainability of the energy sector is at risk from the short-term measures being considered as a solution to the energy crisis.
Currently policy makers are focusing too heavily on solutions to manage the upcoming price cap increase, in particular the Default Tariff Cap, without treating the root cause of the energy crisis, according to Gareth Miller, CEO of Cornwall Insight.
This leaves the public vulnerable in the long run, simply delaying the risks and costs within the current market design rather than fixing them.
To future proof the system, Cornwall Insight identified three key areas of focus for the government, including reforming the wholesale market so it can better respond to volatile gas driven balancing costs.
“We need to reconsider our strategy for buying and storing gas, and the balance between importing from abroad and the benefits of using our own resources,” said Miller.
“Particularly as where we get gas from is irrelevant so long as we stick to a declining usage as we move to net zero. We also need to look again at the type of low carbon technology mix that minimises exposure to volatile international fossil fuel prices, and how we encourage a lot more energy efficiency and demand reduction.”
The rise in wholesale electricity prices in the UK have been driven by a 500% increase in the cost of gas in Europe during 2021. This has placed significant pressure on suppliers, who are bound by the price cap in terms of how much they can charge customers for energy. The squeeze between high wholesale prices and what they can recoup through bills led to 27 supplier collapses in 2021, mostly at the end of the year as gas prices surged.
Read more: Current+
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