IEA: Claims energy price crisis are due to low-carbon transition ‘misleading’

Wholesale gas prices in the UK have more than doubled within a year

In a blog published today (14 January), Birol wrote: “Unfortunately, we are once again seeing claims that volatility in gas and electricity markets is the result of the clean energy transition.

“These assertions are misleading to say the least. This is not a renewables or a clean energy crisis; this is a natural gas market crisis.”

Both electricity and gas prices have skyrocketed in the UK over the past 12 months, with the steepest increases recorded since August 2021. Ofgem has reported a rise in the average price of gas per therm from 49p at the start of January 2021 to 112.5p at the end of November 2021. Within the same timeframe, electricity prices per megawatt-hour increased from 53p to 112.5p.

The electricity price rise, experts have repeatedly stated, is primarily due to rising gas prices. Gas accounts for around 40% of the UK’s electricity generation.

Nonetheless, several influential thought leaders and politicians, including the newly-formed Net-Zero Scrutiny Group (NZSG) of around 20 MPs, are pointing the finger at additional renewable and nuclear energy generation and arguing that current plans for net-zero will push bills even higher in the coming years and decades.

The IEA’s Birol is imploring readers of his blog to understand that “the underlying causes of today’s crisis” do not lie in clean energy.

Causes detailed include a swifter-than-anticipated rebound in global gas demands from Covid-19 slumps, largely driven by cold weather in Europe and warm weather in Asia; outages and maintenance of gas infrastructure and a lack of sufficient supply from major exporters including Russia.

To this latter point, the IEA has data showing that Russia reduced its gas exports to mainland Europe by 25% in the fourth quarter of 2021, against the levels recorded in 2020, It is forecasting that Russia would need to increase current monthly delivery levels by at least 33% to play its role in alleviating the price hike.

Birol does acknowledge that increasing carbon prices, under systems including emissions trading schemes (ETS) from the UK and EU, have played a role in pushing up electricity prices.

However, he has stated that net-zero sceptics have taken this fact out of context. “We estimate that the effect on European electricity prices of the sharp spike in natural gas prices is nearly eight times bigger than the effect of the increase in carbon prices,” his blog states.

Ultimately, the blog harks back to the 2021 edition of the IEA’s World Energy Outlook. Published in October, the Outlook revealed that the world is seeing the second-largest year-on-year increase in CO2 emissions on record, with governments collectively failing to invest in clean energy at the scale and pace needed to deliver a Paris-aligned recovery from Covid-19. The headline finding is that clean energy investment globally will need to triple by 2030 to keep the world on a 1.5C temperature trajectory.

Efficiency improvements

Aside from investment in renewables, nuclear and energy storage, Birol is advocating for increased investment in energy efficiency measures. Global energy efficiency did improve in 2021, following slow progress in 2020, according to IEA data – but improvement rates are still not sufficient to deliver the emissions reductions needed to avert the worst impacts of climate change.

The IEA is not the only body advocating for a greater focus on energy efficiency amid the current crisis. This week, 27 charities and think-tanks have written to the UK Government to urge the swift creation of £2bn of national schemes for improving energy efficiency in homes. This investment, they claim, could generate savings on bills of £7.8bn by the end of 2022.

The open letter, signed by the likes of Age UK, WWF and Greenpeace, outlines how previous missteps from Whitehall have discouraged loft insulation, It argued that, unless policy gaps are fixed urgently, the number of UK homes in fuel poverty could increase by 50% within a year.

Also recommended by the letter are a near-tenfold increase in the heat pump grant programme, to £4bn; a windfall tax on fossil fuel firms; an expansion of the Warm Homes Discount scheme and the removal of ECO levies (costs to fund Government renewable energy and household insulation schemes) from customer bills. These levies should, instead, be paid by the Treasury for 2022, the letter argues.

Sarah George

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