Joint US-Israeli attacks in Iran and the resulting conflict in the Middle East have sent oil and gas prices soaring, something many fear will hit Britain disproportionately.
The UK government’s pledge is that achieving its renewable energy generation targets will ensure energy security and reduce domestic and industrial energy costs.
The conflict in the Middle East may test this promise in advance, with parallels to Russia’s invasion of Ukraine, which led to the energy crisis from which domestic and industrial energy prices continue to fall. This makes this a crucial point for the government to prove the effectiveness of its approach.
It has also prompted many to reflect on the remaining barriers to effective renewable energy policy in the country, namely that the marginal pricing models used in Britain mean that regardless of renewable energy penetration, costs are almost always driven by gas.
In response to media concerns about the impact of events in Iran on both energy security and energy prices in Britain, Oliver Minchin, associate consultant at LCP Delta, compared a Clean energy 2030 scenario with an electricity system that does not have Contracts for Difference (CfD) supported renewables and instead had additional combined cycle gas turbine (CCGT) capacity deployed.
Post the figures to LinkedIn, head of British market strategy at LCP Delta Sam Hollister said: ‘Building more renewable capacity not only reduces our exposure to volatile global gas prices, but also strengthens our energy security and helps secure consumers’ bills for the long term.’
Ensure energy security
Last week, as prices started to rise, British Business Secretary Peter Kyle declared that Britain must “double down” on net zero.
Kyle described rising prices as “living examples of how.” instability is creeping, via regional instability, into our energy prices, over which the UK government has no control whatsoever.”
With this line of thinking, events in the Middle East could lead to energy supplies relying more heavily on renewable sources.
On the world stage, where the conflict between Russia and Ukraine spurred a shift toward Europe, the Middle East could do the same for Asia. explored in depth in our sister publication PV technology.
Britain’s continued dependence on gas, prices of which have risen from 78p/therm to 161p/therm in a week, puts the country at risk of another energy price spike due to international affairs.
According to figures from Reuters, around 30% of UK electricity comes from gas-fired power stations – compared to 17% in Germany and just 3% in France – and is used for heating in more than 70% of homes.
The ECIU’s head of analysis, Simon Cran-McGreehin, said this is “concerning” because of the speed at which the changes are happening; “In mid-2021, when demand increased after the pandemic, it took almost three months for the same price change to occur.”
“Rising gas prices will be a concern for many, not least as many homes and businesses here in Britain are still dealing with the debt and aftermath of the last gas crisis,” Cran-McGreehin added.
Last weekend the media reacted to the revelation by National Gas, which owns and operates the gas transmission system across Britain, that the country had stored 6,999 GWh of fossil gas on Saturday. That is the equivalent of the amount of gas needed to power GB for about a day and a half.
After reports suggested this meant the country would face power cuts, the Department for Energy Security and Net Zero (DESNZ) said on Monday that UK gas supplies will not be affected by the conflict in Iran; About 1% of the UK’s gas supply in 2025 came from Qatar.
Secretary of Energy Michael Shanks hit back directly at one report for ‘dangerous scaremongering’which states: ‘The Telegraph presents a completely unlikely scenario in which Britain could be disconnected from all forms of gas supply and energy markets.’
National Gas also clarified the impact of gas storage levels in a post on LinkedInand calls it a “complex topic” that is “easily misunderstood or taken out of context.” The operator said it has no concerns about UK gas supplies or our current storage levels: ‘the system is working exactly as expected at this time of year’.
Impact on UK energy bills
Although the government’s Clean Power 2030 (CP2030) plans do incorporate some gas into the system, dependence on it would decrease. According to LCP’s modeling, under a successful CP2030 scenario, the energy mix would mean that, with gas prices at current levels, the proportion of the UK energy bill linked to electricity would increase by 8% (£26).
In the alternative scenario, without CfD supported renewables and with additional CCGT generation, this would be an increase of 45%, at £143.
As already noted, the price of electricity follows the most expensive unit (marginal pricing). With the price of gas rising due to fears of undersupply, UK consumers and businesses could once again face higher bills.
Ideally, this would lead to more private cable schemes for commercial properties and residential rooftop PV installations.
In its release, DESNZ also assured that domestic energy bills will not change immediately as a result of the conflict, as the current price cap period was set before gas prices spiked. This runs until July, but Cornwall Insight analysts predict an increase in the coming period as a result of the conflict causing wholesale prices to rise.
Ofgem’s observation period for setting prices for the three months from July 1 runs from February 18 to May 18 and so will reflect the current increase.
Hollister’s post notes that with gas still driving the price in most periods, the benefits of renewables have been somewhat muted this year. However, LCP’s forecast is that with gas prices continuing at current levels, consumers will benefit from the renewables currently online, ‘but only to the tune of £10’.
