Britain facing years-long energy shock even if war ends soon
Wholesale power costs tipped to surge 40pc this year as UK feels impact of global gas crunch
Britain faces a years-long energy shock even if the war in Iran comes to a swift resolution, experts have warned.
Consultants at LCP Delta predict that electricity prices will rise both this year and next because of a global squeeze on supplies of gas, which is used to generate power and set the UK electricity price.
A scramble to refill gas storage is likely to keep price elevated well into next year even if supplies of liquefied natural gas (LNG) start to flow out of the Gulf again.
The forecast will worry the Government, which has relied on LCP Delta to draw up reports on the UK power market.
It comes as pressure mounts on Rachel Reeves, the Chancellor, to draw up a package of support for homes and businesses that face surging energy bills.
Energy UK, an industry trade body, has warned that household bills could jump by £250 a year from July as a result of the Iran war. It has urged the Government to “immediately step up efforts” to prepare support for those who would struggle most when energy costs rise.
LCP Delta said it expects wholesale electricity costs to rise by around 40pc this year and 18pc next year. Chris Matson, a partner at LCP, said the forecast was based on analysis of market prices for delivery of gas across 2026 and 2027.
Mr Matson said: “Consumers are protected in the short term due to the price cap but eventually these rises will filter through into consumer bills.”
LCP Delta estimates that gas prices will rise by an average of 70pc compared to pre-conflict forecasts this year. Prices will be 36pc through 2027. The prediction is made just on events so far in the Middle East.
The impact on bills will be softened by the UK’s subsea interconnector links to Norway and France, which supply electricity. Norway relies mainly on hydroelectricity and France’s power is largely nuclear generated, meaning both are less exposed to spikes in gas.
However, the scale of increases forecast for electricity prices will still have a significant impact on households and businesses.
Qatar is a major supplier of LNG and earlier this month shutdown production at the world’s largest production facility following Iranian attacks. Resumption of production is likely to take weeks once the fighting stops.
[…]
Prices are likely to remain high even when gas starts flowing again as countries scramble to fill up gas storage facilities. Europe’s gas storage levels are around 10pc lower than last year following a cold spell in January, according to consultants at Wood Mackenzie. Reserves are likely to be drawn down further if war in the Middle East and the blockage of the Strait of Hormuz continues.
Simon Cran-McGreehin, of the Energy and Climate Intelligence Unit, said: “With Iran’s new leader pledging to keep the Strait of Hormuz blocked, these impacts are set to worsen.
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