But energy prices in the UK are now higher than in comparable economies such as France and Italy, analysts told CNN Business. And the British have suffered price increases far greater than in most European countries, including Germany, where decades of energy policy have been upended by the war in Ukraine.
The Office for National Statistics said this week that UK natural gas prices had risen nearly 96% in the year to July, while electricity prices are up 54%.
Annual consumer price inflation for gas and electricity in the UK is expected to soar to an average of around 80% this year, compared to an average of 40% in the 19 countries that use the euro, according to an analysis by Deutsche Bank.
A broken market
The way the British government designed the energy market has made that more likely, Henning Gloystein, director of energy, climate and resources at Eurasia Group, told CNN Business. Small businesses acted as brokers rather than providers of an essential public service.
“Many retail energy suppliers in the UK were not true energy producers. Instead, they bought electricity and gas on the wholesale market and then resold it to retail customers like households,” Gloystein said.
This meant that as soon as wholesale prices rose far beyond what suppliers could legally charge, they went bankrupt.
The prices paid by UK households are subject to a cap, but it is adjusted every six months – a period about to be reduced to three – which means that bills rise faster in line with wholesale costs.
“There is a transition agreement between now and when we move to this full quarterly model which pushes prices up a little bit more,” Sanjay Raja, chief economist at Deutsche Bank in the United Kingdom, told CNN Business. . “Suppliers are able to pass on wholesale gas price increases much faster than they have been in the past,” he added.
Lack of storage
The UK faced a “perfect storm” of events that drove up energy bills, according to Raja.
The country also depends on gas to generate 40% of its electricity, compared to less than a fifth for the entire bloc, according to Deutsche Bank.
“It’s a double whammy and the UK’s overreliance on gas is a big reason why gas prices, I think, in the UK are a bit higher than elsewhere. “, did he declare.
While the UK produces about half of its gas production in the North Sea last year fell to its lowest level on record due to maintenance work, according to the government business department.
UK natural gas contracts for the first quarter of next year are almost 7% more expensive than European benchmark contract prices, according to analysis by Auxilione. This is because Europe has now built a buffer for the winter months.
“We are much more dependent on the here and now when it comes to winter,” he said.
European gas is still very expensive. It was trade at €242 ($244) per megawatt hour on Friday, an all-time high, according to Auxilione. That’s much higher than the UK gas spot price, which trades at the equivalent of €160 ($161) per megawatt-hour, but the differential is mainly due to increased demand in Europe as it fills its reservoirs for the winter.
Minimal government support
But the “elephant in the room”, Raja said, is that none of the support offered by the UK government so far has directly subsidized consumer energy prices. Earlier this year the government announced a £150 local tax rebate for millions of households to help ease the pain.
More aid is coming soon, but it won’t be enough, say anti-poverty campaigners.
In May, the government announced a £15 billion ($18 billion) support package, including a £400 ($482) loan to 29 million households from October, which will run over six months.
By way of comparison, France has capped electricity price increases at 4% until the end of the year.
Other countries “have had a more direct intervention with energy prices, so comparatively gas and electricity prices in the UK are a bit higher,” Raja added.
The opposition Labor Party is calling for a windfall tax on the profits of oil and gas companies to be extended to help fund a freeze in energy bills this winter.
— Mark Thompson contributed reporting.