Gas price spike to add £29 billion to UK electricity bills next year

Executive summary

Gas prices set to add an extra £29 billion to 2022 UK electricity prices

A new forecast by energy think tank Ember examines fossil gas and electricity forward prices for calendar year 2022, and compares them with the most recent price forecasts by BEIS (the Department of Business, Energy, and Industrial Strategy).

• UK businesses and consumers will be spending an additional £29 billion on electricity next year – equivalent to 1.3% of UK GDP
• Current fossil gas and electricity prices are triple the BEIS forecast
• Fossil gas is set to be responsible for roughly 80% of the forecasted rise in electricity prices

Spiking gas prices drive up electricity costs

Businesses and consumers face paying the bill for UK gas dependence

The 2035 gas phase out – as committed to by the government – is vital to reduce exposure to the volatile global fossil gas price.

A new forecast by energy think tank Ember examines fossil gas and electricity forward prices for calendar year 2022, and compares them with the most recent price forecasts by BEIS (the Department of Business, Energy, and Industrial Strategy). Ember’s calculations show that UK businesses and consumers will be spending an additional £29 billion on electricity next year – equivalent to 1.3% of UK GDP. Electricity costs were expected to be £18.5 billion in 2022. Ember’s forecast based on 2022 forward prices suggests they will be £47.5 billion. Approximately 80% of the expected electricity price rise in 2022 will be caused by the spike in fossil gas costs.

In the government’s most recent energy and emissions projections, BEIS forecast that electricity prices would be £58.5/MWh in 2022. Due to the recent surge in UK electricity prices, calendar year 2022 is now priced at £150/MWh* – an increase of £91/MWh. In the same projections, BEIS estimated that UK annual electricity demand would be 317 TWh in 2022. Using the BEIS forecast power price of £58.5/MWh, the total cost of electricity would have been £18.5 billion. However, based on the current price of £150/MWh, the total cost of electricity will be £47.5 billion. This equates to an additional £29 billion compared to the BEIS projections.

*EEX UK Power settlement prices on 4 October 2021

Conclusion

Gas dependence is costing the UK

Clean power is the solution

Rapidly phasing out fossil gas from the UK electricity grid is the most significant way to bring spiking power sector costs down. Recent Ember analysis found that electricity from new wind and solar is already significantly cheaper than existing gas generation in the UK. The government’s new commitment to a 2035 gas phase-out (as recommended in Ember’s recent Clean Power Plan) must be swiftly followed by the policy that will facilitate the build out of clean power, including investment in innovative long-term energy storage and deployment of offshore wind.