European energy crisis: why is there an energy crisis in the UK and Europe - cost of living rises explained

As winter temperatures continue to bite, many more of us are finally caving to the cold and switching on the central heating after putting it off for a lot longer than we may have done in previous years.

But not only are customers feeling the financial burden of wholesale energy costs being passed on to them thanks to a sharp increase in gas and electricity prices, the energy sector as a whole is under strain.

Earlier this month, the UK’s electricity grid operator launched emergency ‘contingency’ plans as freezing temperatures heaped pressure on the network, prompting energy demand to soar across the country.

National Grid‘s Electricity System Operator (ESO) asked two backup coal power plants to start warming up on Monday 12 December in order to give the public “confidence in energy supplies”.

This was not the only ‘contingency’ plan activated as the operator is also looking to run another test of its Demand Flexibility Service - which pays customers to use less electricity during certain hours of the day.

Customers of some energy suppliers may be asked to reduce their consumption between 5pm and 7pm for instance, as this is when demand is usually particularly high as people return home from work and school, and look to start making dinner.

The measures came as a cold snap - which saw the country faced with below-zero temperatures and snow in many regions - ramped up demand for energy when supplies were already tight. Concerns were raised then about the UK’s power supply, especially given the grid’s previous warning that nationwide scheduled blackouts are a possibility.

So why is the network under such pressure, and just what are the global economic stresses putting it under strain? Here is everything you need to know.

Why is there an energy crisis?

Households were warned earlier this year that there could be potential blackouts this winter, after fears power plants will not be able to run to full capacity.

National Grid ESO said that power plants in certain parts of the country may not be able to source enough gas to operate at full power throughout the winter months, leading to three-hour planned blackouts in some areas of the country. However, the operator also insisted that this situation is “unlikely” in the current circumstances.

One of the biggest pressures on the gas supply of the UK at the moment is the war in Ukraine. Russia has supplied much of Europe’s gas over the past few years.

Grappling with financial sanctions and restrictions, Russia has cut its gas supply to Europe in the past year by 88%. As a result, the wholesale price of gas has increased 210% since the beginning of the war.

As European nations turn to alternative suppliers, the prices significantly increase with less to go around. Therefore if a sufficient supply is not available, blackouts may be needed to conserve as much as possible and stop the grid from collapsing over the difficult winter months.

Another scenario could see the electricity supply from nations such as France, Belgium and the Netherlands be cut in the winter months, as the nations deal with their own energy crises. Around 43% of the UK’s power plants are gas-fired, meaning if there is a shortage, some may not be able to operate to full capacity.

Extreme weather conditions could also affect supply, such as those seen in the ‘Beast from the East’ storms of 2018, which could add additional pressure on the grid.

Why are energy bills going up?

A dramatic increase in the cost of wholesale gas has put pressure on the energy industry, but these rises are nothing new. Wholesale gas prices increased by 250% in 2021, as the energy crisis first gripped firms.

More than 20 smaller energy firms went bust as companies struggled to cope with the sustained rise in wholesale gas costs. Companies shouldered the initial financial weight before an increase to the energy price cap alleviated some of that burden in October 2021.

However, it came too late for some smaller firms, such as Pure Planet and Avro Energy, who could not recoup costs fast enough to plug the holes.

Factors for the prices going up include supply and demand following a particularly cold winter across Europe, pressure on supplies, and Russia’s invasion of Ukraine.