Finance

EAST EUROPE CONFLICT

set to ramp up energy bills for London firms

The invasion of Ukraine by Russia is an appalling act of aggression with terrible loss of life and displacement of potentially the largest number of people in Europe since World War II.

One impact of the invasion is likely to be a significant impact on the UK’s energy supply – and a huge rise in energy bills for consumers and businesses.

Energy – specifically oil and gas – is one of Russia’s key exports into Europe as it supplies much of the continent’s oil and gas. The British Chambers of Commerce (BCC) said energy bills in the UK were likely to rise sharply throughout this year as a direct result of the conflict in Ukraine and the sanctions imposed on Russian exports. The organisation has advised businesses on several key points: • The UK does not import significant amounts of gas from Russia, despite its status as the second largest gas producer in the world (contributing 17% to global gas output in 2020). However, the current energy crisis in the UK is being driven by rising global gas prices.

Volatility in this market will continue to affect UK energy costs. • Around 5-6% of UK gas imports come from Russia.

• With Russia withholding resources over the last two years, the UK has been exposed to volatile international gas markets. While our supply is unlikely to be affected, the price we pay for gas is, leading to rising energy bills this year. • Many European nations have agreed that increasing the use of renewable energy is one of the solutions to reliance on Russian gas. The Prime Minister has confirmed that the UK will “cease the dependence on Russian oil and gas that for too long has given Putin his grip on western politics”. The UK will therefore have to reduce its demand for gas or replace it with other sources. In the near-term, the UK’s reliance on Liquified

Natural Gas (LNG) is likely to increase, but increased global competition for this resource will drive costs up. • The energy price cap in the UK has risen from £1,277 to £1,971 in response to rising gas prices. Gas accounted for at least £500 of that increase.

• Energy UK has warned that the price cap may increase again to £2,400 in October.

The conflict in Ukraine has seen these estimates rise to around £3,000, again driven by global gas prices. • As gas, which generates 40% of the

UK’s electricity, still sets the price for all generators, the increase in gas prices is also driving a rise in electricity prices.

These costs are felt by consumers and businesses.

The BCC said: “The UK government has been clear that investment in renewable energy is key to mitigating against price rises. The UK is already a global leader in the production of renewable energy; continuing to invest in home-grown energy will shield businesses and households from further price spikes. “Since the onset of the energy and gas crisis, the concept of increased energy efficiency has received additional attention as a means of reducing gas and energy consumption, thereby reducing bills. Reducing the amount of energy that you consume on your premises will be vital for businesses in the immediate future. With gas prices set to continue rising, this is likely to be the most effective way of lowering bills for some time.” ❛❛The UK government has been clear that investment

in renewable energy is key to mitigating against price rises. The UK is already a global leader in the production of renewable energy; continuing to invest in home-grown energy will shield businesses and households from

further price spikes. ❜❜