Study: Gas price crisis has cost UK £60bn since Russian invasion

Study: Gas price crisis has cost UK £60bn since Russian
Study: Gas price crisis has cost UK £60bn since Russian invasion

New analysis from ECIU argues Britain's gas reliance means soaring wholesale gas prices have cost around £1,000 for every adult in the UK

Astronomical wholesale gas prices in the year following Russia's invasion of Ukraine have cost the UK an additional £50bn to £60bn - or approximately £1,000 per adult - according to new estimates from the Energy and Climate Intelligence Unit (ECIU).

A new report from the think tank details how the disruption to energy markets and Russia's weaponisation of gas supplies has led to the UK paying record high prices for the gas that continues to dominate much of its energy system, driving a trebling of energy bills that forced the government to intervene to provide billions of pounds in financial support to households and businesses.

The analysis concludes that total additional spending on gas over the past year is likely to sit in the £50bn to £60bn range, but depending energy companies' level of exposure to wholesale prices additional costs could have reached as high as £70bn - equivalent to the cost of the government's pandemic furlough scheme which ran from March 2020 until October 2021.  

The Russian invasion triggered a spike in wholesale gas prices, which are currently around three times higher than before the current gas crisis.

The UK was not reliant on Russia for gas imports, but was still hit hard by surging wholesale gas prices on international markets. The IMF recently concluded that British households have been the worst hit in Western Europe by the continent-wide energy crisis due to the UK's high dependence on gas.

According to ECIU, the UK imports around 55 per cent its gas which it uses to generate 40 per cent of its electricity and heat 85 per cent of its homes - which are also amongst the least energy efficient in Europe.

Although gas contract prices are said to have fallen in recent weeks, customer bills are still based on trades made last year at inflated prices. Experts have also warned that prices could spike again next winter unless further action is taken to secure long term energy supplies.

ECIU said the cost impacts faced by the UK have been exacerbated by the failure to more rapidly pursue key net zero policies, calculating that a package of measures to retain energy efficiency funding schemes, enable onshore wind farm development, and accelerate heat pump deployment could have saved a typical household up to £1,750 in 2022.

Dr Simon Cran-McGreehin, head of analysis at ECIU, stressed that given the price of gas is largely set by international markets, the only way for the UK to protect itself from future price spikes is to use less of the fossil fuel.

"As the IMF has pointed out, the energy crisis hit UK households harder than those in other western European countries because as a nation we're incredibly dependent on gas," he said. "The price of gas is largely set by international markets, so the only way to protect yourself is to use less. The onshore wind ban has been one of the barriers to this. We're also running behind places like Sweden, Poland and Estonia on installing electric heat pumps. As renewables and heat pumps proliferate, less imported gas is needed, which in turn benefits our balance of payments and energy security."

The ECIU's analysis - which uses Ofgem's 'nominal supplier's hedging strategy' in tandem with government data to estimate non-domestic gas costs - follows the release yesterday of figures gathered by the European Heat Pump Association (EHPA), which revealed how an estimated 20 million heat pumps are now installed across Europe after a record three million units were sold last year.

However, the trade body estimates that the number of heat pumps sold per 1,000 homes in the UK is the lowest in Europe, standing at just 2.13 units. By comparison, Germany, France, and Belgium have installed 5.75, 14.9, and 6.52 heat pumps per thousand homes, respectively.  

In further analysis of the destructive effects of the war in Ukraine, Greenpeace Central and Eastern Europe (CEE) has today published an interactive map documenting the most serious cases of damage to nature as a result of Russia's latest invasion of Ukraine.

The map is based on almost 900 reports being investigated by the Ukrainian organisation Ecoaction, with CEE plotting 30 of the most serious cases on its map - including examples of land and habitats being damaged, missile strikes causing wildfires, and fires at industrial sites polluting the air, soil, and water.

* This article was originally published here