Everything you need to know about energy, from the crisis to greenwashing suppliers
Over the last few months, one of the main topics we’ve heard on the news is the 'energy crisis'. But what does this actually mean and how did we end up here?
The energy crisis explained
Last summer the energy crisis began when the price of gas on the wholesale market started to rise drastically due to a few reasons, the main being due to a shortage. Most of Europe relies on Russia to supply a share of their gas, but with increased competition from Asian markets, less gas was available for European countries.
There was also less wind than expected over the last few months which has meant less renewable energy has also been produced. A few power stations were out of action towards the end of 2021 due to maintenance issues too. Those three factors combined resulted in a general shortage of energy, increasing the price of wholesale energy. Energy prices have further been put under strain following the invasion of Ukraine.
Furthermore, Russia and Ukraine are key exporters of wheat and grain to the rest of the world, with Russia also a large exporter of fertilizer. This has put pressure on UK farmers who have faced challenges in attaining their usual supplies.
Anaerobic digesters generators are feeling the knock-on effects of the war in Ukraine, including less access to food waste and wheat used to generate electricity, which adds to the already strained market and contributes to the rising prices.
Since the start of 2022 gas prices for next year have quadrupled and power prices have more than tripled.
Why do gas prices increase the cost of renewables?
Gas tends to set the price of all energy, despite the source. Despite the reduction in the cost of renewable energy in the last 15 years, the price of electricity at any one time is typically set by the last generator to turn on. In the UK, that is often gas. If that gas is very expensive, then people who generate renewable electricity can then sell their energy for more.
In an ideal world, we’d have a different market and grid for renewable energy so we could see the real benefits of lower prices and clean energy, but for now, unless there is entire market reform, all power, from fossil fuels to wind power, is under the same grid.
Why did so many energy suppliers go bust?
In 2021 we saw roughly around 30 energy companies go bust. This is because the energy price cap, set by government regulators Ofgem, was set lower than the wholesale cost of energy.
This means that suppliers, including some renewable energy companies, were paying more to buy the energy than their customers were paying for the energy they used, causing suppliers to operate at a loss.
Since then, the price cap has been increased and is now under review every three months, with the next review due in October 2022 where it is expected to rise even further to roughly £2,800. The government has set out support plans for this including a £400 energy discount which will be applied to accounts in the Autumn.
When energy suppliers go bust, all customers are assigned a new provider via a process called ‘supplier of last resort’. Newly appointed suppliers must buy power for their new customers at very high market prices and take on all the operational costs of setting up thousands of new accounts and getting these customers on the correct tariff. These additional costs are shared across the market and passed onto customers in their bills, further raising the price of energy.
What is greenwashing?
One thing that has become even more apparent since the start of the energy crisis is the number of energy suppliers who have been mis-selling their power as ‘green’ when in fact it is not. Greenwashing is a complex topic, but even more so in the energy industry. Here is a great explainer video on how suppliers greenwash their power produced by industry experts and genuine 100% renewable supplier, Good Energy.
In a study conducted by Good Energy, it was found that 65% of people would switch to green energy suppliers offering a green tariff if it meant supporting the transition to net-zero emissions, helping the planet and combating the climate crisis.
However, many tariffs are marketed as ‘green’, but this isn’t always the case. Certain suppliers offering these tariffs are buying dirty power from the wholesale market, and labelling it green through a regulatory loophole, where they buy Renewable Energy Guarantees of Origin (REGOs) certificates, which allow them to label their power as renewable.
As a result, lots of people who believe they are doing their part in supporting the growth of renewable electricity by choosing green tariffs are ill-informed about where their power is actually coming from.
How do I check if a supplier is greenwashing?
One way to ensure you are supporting genuine renewable energy companies is by looking at U-switch’s green accreditation where they have ranked each individual tariff in the market by how green it really is, with gold being the highest standard.
It is also key to look at the supplier's website. Most green suppliers will have a detailed page on where their energy comes from with a breakdown of their energy mix, including their renewable sources, whether this is from solar panels, wind turbines, biogas or hydropower.
If you’re still unsure, you can contact the provider and speak to industry experts about where their energy comes from. They should also be able to give support and advice on how you can lower your bills and save money by installing a smart meter and checking you're on the correct tariff.
Who are the UK's green energy suppliers?
There are many energy suppliers available in the UK, but some support more renewable sources and are better for your carbon footprint than others.
Good Energy is the only supplier to have all of its tariffs accredited to the Gold Standard, as judged by an independent panel of experts from Uswitch.
The requirement for Uswitch Gold Standard Green Tariffs is that 100% of renewable electricity is sourced via power purchase agreements or PPAs. This means that the power is sourced via direct contracts with renewable generators, rather than a mix of fossil fuel, nuclear and renewable purchased on the wholesale market and then ‘labelled’ green with certificates called REGOs. For gas tariffs, the requirement is 10% from green gas with the remainder carbon offset.
Other green suppliers who offer green tariffs include Octopus Energy, Green Energy UK, OVO Energy, Ecotricity and others, but make sure you do your research.
Why switch to green energy?
Powering your home or business with green energy is one of the easiest ways to reduce your carbon footprint, making it a much more planet-friendly option. Demand for renewable energy and clean power generated from the sun, wind and water is fast-growing compared to fossil fuels such as coal, gas and oil as more and more people realise the benefits of greener choices.
Roughly 40% of the UK's energy mix is powered by renewable energy and this is growing year on year. If more people choose to support green energy suppliers and switch to green tariffs, we can continue to invest in renewable generation and increase our energy self-sufficiency. Reducing our reliance on fossil fuels and outside providers such as Russia would mean a more stable market with fewer price spikes in the future.
We know that renewable energy is cheaper too as it relies on purely natural sources with no emissions, such as wind, solar and hydro. If more customers use renewable electricity then we can create a greener grid by increasing generation, which would lower the reliance on gas and reduce the cost of power.
Written by Rhiannon Barriball (Senior Communications Executive at Good Energy and climate advocate