The alarming rise in electricity rates in the UK is no secret. In just 12 months between September 2020 and 2021, the wholesale price of electricity rose from £43.50 to £107.50 per MWh, a devastating rise for families and businesses throughout the country. Even during Covid-19, electricity rates weren’t anywhere near this figure, and it doesn’t bode well for the future. But what is it that is driving this increase in rates? And what does the future look like for the cost of electricity in the UK? Let’s find out.
What is driving the cost of electricity in the UK?
There are lots of reasons why the cost of electricity has soared in recent times. Traditionally, the UK has imported energy from the east, from markets including Russia and Kazakhstan. Since the outbreak of the Russian invasion of Ukraine and our strict sanctions, we have had to look elsewhere for our energy supplies, which has driven the price up even higher. In addition to the conflict, our electricity prices are influenced by exchange rate fluctuations, temperature, and allowance pricing. However, more than half of a standard electricity bill comprises what is known as ‘non-commodity charges,’ which are network costs associated with energy bills, as well as initiatives relating to climate change.
What can we expect in the future?
With the Russian invasion of Ukraine causing one of the most politically tense situations in Europe since the 1940s, there’s a lot up in the air right now in multiple sectors. But it’s fair to say that the energy sector has been disproportionately affected and will continue to be in the foreseeable future. But aside from the conflict, there are other factors that are likely to drive the cost of energy upward in the coming years.
The UK’s Committee on Climate Change (CCC) is monitoring the UK’s efforts to meet its fifth carbon budget. Experts have predicted that to meet the budget, fuel prices are likely to increase by 51% by 2030, based on 2016 prices. Approximately 60% of this increase will be a result of the UK’s low-carbon policy. This cost comes from our government’s support for low-carbon generation, as well as contributions to the Climate Change Levy.
What about renewables?
Given the soaring costs associated with energy and our ambitious collective climate targets, isn’t it time we looked more seriously at renewables? Until recently, solar systems in the UK were regarded as a viable option for those with high disposable incomes, and they weren’t seen as a serious alternative to 100% reliance on the National Grid. However, as the cost of electricity has risen dramatically in recent times, the cost of solar has dramatically decreased. Approximately, the cost of generating electricity from solar is as low as 3-4p per kWh. Not only are they cost-effective, but solar systems provide protection against the instability of energy markets and protect businesses and individual homeowners from the inconveniences associated with power outages.
At AceOn, we’re working with partners throughout the UK to develop solar initiatives, and our battery energy storage solutions are making solar a much more viable option for homeowners and business operators. Find out more about our energy storage solutions today and consider how renewable energy sources can contribute to a greener and more sustainable future for you and your business.
