Organisations and individuals are slowly becoming aware of the staggering rise in energy prices and the impact on their cost base and the wider economy. It’s no secret that prices have been going up, but few people are aware of just by how much and why, and they’re even more unsure about what’s going to happen next. Here’s an insider’s view of what’s been happening in the last year and practical advice on how to look at your energy prices going forward.
Energy prices crashed after COVID-10
The COVID-19 pandemic in 2020 sent energy prices crashing, with demand drying up worldwide as companies were forced to close operations and send staff home. Prices dropped to multi-year lows in the summer of 2020 and stayed low for the rest of the year and the first half of 2021.
Prices started to creep up in the second half of 2021
In July-August 2021 prices started to head higher, kicking off alarms for organisations like Ameresco that monitor prices daily. Fears over storage levels in the run up to the winter pushed prices for natural gas above 200 pence per therm, an increase of over 400% on the previous year.
And then Russia invaded Ukraine
In the first few months of 2022, it looked like prices could start to fall back, and then Russia invaded Ukraine and the resulting geopolitical uncertainty, imposition of sanctions on the Russian regime and ongoing war spiked prices higher. 200 pence a therm for gas now looks like a “normal” trading range. But is this going to continue for a short or long period?
Prices could stay high for the next three to five years
Let’s look at the fundamentals. Global gas demand is up – we know this was happening even before the Russian invasion. The risk is that global supply reduces as pressure increases on consuming nations to reduce their dependence on Russian oil and gas, which is continuing to fund the regime’s ability to make war. A rise in demand and a fall in supply will maintain prices at current high levels. Alternative supplies such as liquefied natural gas (LNG) will try and fill the gap, but it takes years for this to happen.
So, what should you do? There are four steps to take:
The reality for organisations is that this is not a quick fix. Energy costs are now a board agenda item, so you need a strategy underpinned by an understanding of your financial position, market conditions and available options. Such expertise is not always available within organisations, so you may want to consider working with experienced third parties like Ameresco to package a set of options that are fit for your portfolio.
To discuss this any further, please contact Kath Chapman at Ameresco UK.