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London Eye: UK falling into energy crisis

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The UK is particularly vulnerable to the current global squeeze on gas and energy prices.

London Eye: UK falling into energy crisis
The costs of energy are set to double in the New Year, energy companies and consumer groups fear. Calls are being made already for the government to prepare to step in to lessen the bite of those expected price rises.
Rise in fuel and energy costs are less politically sensitive in Britain than they are in India where even a relatively small increase can become politically thorny. But the scale and the extent of the energy crisis is beginning to hit the UK government, as it is hitting household budgets.
The rising wholesale gas prices are of course not hitting Britain alone. But an anticipated doubling of average annual energy costs for a household to 2,200 pounds means a level of bills that will drive millions of families to keep warm next winter.
The rise in energy costs has begun to bite already this winter. More than 30 energy supply companies have gone bankrupt this season so far, driving consumers to switch suppliers. The firms have been unable to keep operations going amid the rising global prices.
In Britain, the regulator Ofgem caps energy bills for households. Some of the smaller companies have gone under because they were not able to pass on prices rises to consumers under the Ofgem cap. A recent dip has brought uncertainty rather than any reassurance of a decline in prices set to stay.
The rise in gas and oil prices has cost British consumers an estimated 4 billion pounds this season, despite the Ofgem cap. The energy bills of about 15 million consumers rose an estimated 12 percent just in October. And costs have been rising since despite the Ofgem cap, that sets out a default tariff for energy companies to charge.
That cap is due to be raised in April 2022 after energy firms’ inability to keep prices under that limit. By present estimates the cap could rise as much as 50 percent. Demands are rising for the government to absorb much of the price rise by keeping the cap low and paying the difference.
Energy firms have been demanding also a cut in taxes and environmental levies that are in place for energy drawn from oil and gas. Any easing of environmental levies will necessarily erode British government commitments made at the COP26 climate change summit.
Demands are rising specifically for a rise in energy bills to be subsidised through higher earnings from value added tax (VAT). Those receipts from April to November this year have totalled 448.1 billion pounds, which is 106.8 billion pounds higher than over the same period last year.
UK More Vulnerable
The UK is particularly vulnerable to the current global squeeze on gas and energy prices. That vulnerability highlights also the difference between rhetoric and reality presented through the COP26 summit. Britain led the demand for India to make a commitment to cut coal out entirely as a source of energy. But gas and oil too are fossil fuels that produce a high level of emissions. And Britain is more than averagely dependent on these.
Britain is among the largest users of natural gas in Europe, with at least 85 percent of homes dependent on gas central heating. A third of electricity in the UK is generated by natural gas. That was not heard much from COP president Alok Sharma when he lectured India about cutting use of energy from fossil fuels.
British households are being advised at present to cut costs by cutting energy usage. The London orbital road the M25 has been blocked often by protesters asking the government to step in to insulate homes to cut loss of energy. The government has promised to do more through such measures.
Households are being advised also to drop their thermostats to cut the level of heating. In the usual Indian way through a winter more and more British families are being encouraged to wear warm clothing indoors as well. Reduced use of dishwashers and washing machines is being encouraged, together with a switchover to LED bulbs.
Such steps would be hard for offices and establishments such as restaurants and other public buildings. Many of these are beginning already to pass the rising costs to consumers. The British public has begun to pay for energy use in more ways than one, with worse to come.
— London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.
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