This week our charity finally got a quote for our energy bills for the winter.  The new quoted unit price of gas has risen by 600% (risen from 3.6pence to 24.4pence).  The standing charge by over 1,800% (gone from £3.04/mth to £54.80)!   This is likely to add another £12,000 to our bottom line, and that’s before prices rise again in January.   I know we are not alone – every charity and business, and of course home owner is facing similar price hikes, but this is a terrifyingly large amount of money to find when finances are already tight. 

Even before the covid pandemic and the latest cost of living crisis, in Scotland the Joseph Rowntree Foundation report as many as a million people are trapped in poverty, a quarter of a million of whom are children.  In one of the richest nations in the world, this is an appalling statistic.   Nobody knows how many more will be forced into poverty by the unaffordable price of fuel and increasing price of everything, but it is a stark baseline even before this latest crisis.

This massive price hike in energy is particularly worrying for charities, especially those who are focused on supporting families and individuals through the cost of living crisis. They are already stretched providing safety-nets or lifeline services for those in poverty and this may simply break them. 

We are trying to understand what relief there is for charities and small business, but are not sure if there is any way to really avoid much of this cost other than scrimping and saving. However, I have been asked by several people to help explain why costs have gone up so much and what we can do, so below are some of the questions I’ve been asked most.

So why is the gas price as high as it is?  

According to Carbon Brief, there has been a 11-fold increase in the UK wholesale price of gas since 2019, and this in itself is responsible for as much as 96% of the energy price rise. It is clear that the UK as a whole is far too dependent on gas – much of which is imported. The wholesale price of gas has increased because international demand has increased from across Europe and globally (pushing the price up). Most recently this has been exacerbated by the Russian invasion of Ukraine. We also have low gas stocks in the UK, and are reliant on gas (as many countries are), for 30-40% of electricity and as much as 85% of home heating. Around 3% of the increased cost is due to the collapse of suppliers, although the costs of bailing out others such as Bulb may yet add to this.

Doesn’t Scotland produce 97% of its electricity renewably – why are we impacted by the price of gas?

Scotland produces more electricity than it uses, but the equivalent of 97% of its domestic electric demand is from renewable sources, although renewables only account for 62% of total production. The rest is produced from nuclear (26% in 2020) and gas (10% in 2020).  Scotland imports electricity when demand is higher than domestic production can accommodate, and since gas still provides 33% of electric production UK wide we are still affected. In terms of heat, the impact is greater still as 85% of home heating relies on gas (512 TWh/year).  

Why has the standing charge gone up as much as it has?

Energy suppliers charge for both the fixed costs of servicing and administering customers and connecting them to the network, as well as the amount of energy actually used.  These ‘fixed’ costs are usually a standard rate and covered by the standing charge.  Actual usage in kilowatt hours is charged per unit (unit rate). High energy users will often pay a higher standing charge and a lower unit rate.   A big part of why standing charges have increased so much is because many suppliers have gone bust, so the fewer remaining suppliers are now having to recoup a larger proportion of network costs.

How long is this high price likely to last?

This is difficult to say, but the conditions that have created this high price are unlikely to disappear quickly, so many forecasters are expecting prices to remain high at least into 2024 and possibly beyond.

Is every country equally affected globally?

The UK has fared worse than many western countries because the government have run gas stocks down to ‘historically low levels’ according to the Chief Executive of Ofgem, and because other overseas governments have stepped in to control the price setting of energy, often made easier because much of their energy is nationalised.

How many people are likely to be affected?

It is believed that as many as two thirds of households will struggle.

What has the government done to tackle this?

The energy price cap has risen by 27%, from £1,971 per year to £2,500 per year for an average household user (though this may be more for higher users).  The government has put a £400 support package in place for all households from October 2022 to March 2023, which means the true price cap will be £2,100 – until April, when it'll bounce back to £2,500.  The next price cap announcement is due on November 24^th.

Visit https://www.ofgem.gov.uk/check-if-energy-price-cap-affects-you to learn more about the price cap.

What can we do about it?

The electricity price is high because gas generators currently set the price.  Ultimately though, as we move to a high renewable powered electricity system, it would make sense to change this, so avoiding the massive volatility of the global gas market. Longer term therefore we need to wean ourselves off gas and increase renewable energy sources and be more energy independent.  As Barack Obama told US Congress, “a nation that can’t control its energy sources, can’t control its future.” 

One answer to avoid fuel poverty is to avoid poverty.  We clearly need to do more to tackle the root causes of poverty and ensure those in work are paid well enough to keep up with living costs – most wages have stagnated since the beginning of austerity.  Even pre-covid and the cost of living crisis, around 20-25% of Scottish households were in poverty, and this is expected to rise significantly.   Very significantly.  It’s a shocking statistic.

Personally, and locally for those that can afford it, in the medium term we can install more insulation and draught proofing, more solar panels, more community energy schemes, and air source heat pumps, so reducing gas demand. 

In the immediate term, the priority is surely to help those who might starve or freeze over the coming winter.  It is hard to see how we can all get through this crisis without some direct payments to struggling households.  We need to reach out in our communities and also help those charities that are trying to help.  All of us meantime are going to have to find ways to save money and reduce usage.  There are plans being developed by councils and government for public ‘warm spaces’ and food provision, and renewed interest in community energy schemes and district heating. 

Individually, insulating our homers better, lowering thermostats, behavioural changes, and other economies in how we cook, dress, bathe and heat ourselves are inevitable.  As a wider economy, just to save money, driving more slowly (50mph vs 75mph) can save 20% of fuel. 

Poverty has been an issue for far too long, and this cost of living crisis has thrown a spotlight onto this issue.   It is likely to lead to many more organisations and individuals falling into poverty.   Inequality is unsustainable, so it is in all of our interests to tackle this.  If there is any good to come out of this crisis, it is I hope in realising the importance of renewables and energy efficiency, in valuing more the charities and organisations that deal with these issues day in day out, and I hope, in properly addressing poverty in all its forms once and for all.  

What is RSGS doing?

RSGS with the Perth City Leadership Forum will be hosting The Big Lunch this month in Perth, bringing together the people, businesses, charities and community networks to co-ordinate action towards making a real difference. This lunch is a chance to hear more from the front-line organisations that are dealing with this issue every day, to hear ideas of how to reach more children and families, and to explore what help these organisations need to scale up their efforts.