386 - Increasing energy costs | Scoins.net | DJS

386 - Increasing energy costs

One would think that spring would reduce energy demand significantly. But the leap in gas prices is having a steady knock-on effect, e.g., UK inflation at 7% source, and rising to 10% by the end of the year [6].  Increased fuel costs nudges virtually everything upwards; loss of Ukraine (and Russian) wheat is going to have another significant effect, (see list); Russia and the Ukraine produced (2020) 111  of the global 760 million tonnes, not quite 15% of the whole. The EU produces a bit under 17% and only China grows more, still under 18%. So I think we should expect inflation on fuel and food to continue upwards. Wheat price forecast. Gas price forecast. That UK prediction looks like a multiplier of five or six on 2020 gas prices, which not only would make gas more expensive than electricity, but that too would rise in price. This is not at all straightforward; gas prices are quoted in pence per therm, currently passing 200 and at a mean for 2022 of 153, while electricity is quoted in price per MWh and the 2022 price is £150. 100 therms equate to 2.93 MWh, so would cost around £153 and that would be £52 per MWh. But we make quite a lot (about a third) of electricity from gas (see [4]), which is why the prediction for electricity price in 2022 is three times what it was in 2020. So we might as well accept that all energy is going to leap by a multiplier of three or more and that, while the government will take actions to slow these changes down, in the end the multiplier will be more like four, say in 2023 (and ignoring the inflation that this brings). 

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Bearing all that in mind, the incentive to Insulate Britain ought to be significant. But of course we have, like the Ukraine situation, a  lot of hand-wringing and precious little ability to do anything very much about matters. At an individual and personal level this changes how one might spend and I have often pointed to the national spend on entertainment (broadband, streaming, phones and tvs) so that I expect there will be a reduction in that as the same money moves to buy food and energy. 

As ever, those with capital are in a position to make preventative moves, such as additional insulation. In our individual case, I'm afraid we'd be better off changing house thanks to the severe limitations caused by living in a conservation area.





[1] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/march2022

[2]  https://worldpopulationreview.com/country-rankings/wheat-production-by-country

[3]  https://www.statista.com/statistics/374970/united-kingdom-uk-gas-price-forecast/

[4]  https://ember-climate.org/insights/research/gas-price-spike-to-add-29-billion-to-uk-electricity-bills-next-year/

[5] https://ifs.org.uk/publications/15691?gclid=Cj0KCQjwg_iTBhDrARIsAD3Ib5gicCfcqG4un6QIr4EWHvMDouBi1XEa4FU_dsqbH-ff88OcLxKFTjIaAneYEALw_wcB  Quite fascinating. The UK economy is in the midst of a sharp – but incomplete and wildly imbalanced – recovery. Mid-2021 the prediction was under 5% inflation April 2022. Yet we're at 7%.

[6] https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2022/may/monetary-policy-report-may-2022.pdf Says 10% in Q4 is expected, and that we have 9% in Q2 (which is the current period). Surprisingly readable.

[7]  https://www.ons.gov.uk/economy/inflationandpriceindices/articles/energypricesandtheireffectonhouseholds/2022-02-01  Take-homes:-

12% rise in the [..] energy price cap. The UK imports 50% of its gas; gas fuels a third of electricity generation. Oct2021, gas rose 17% and electricity 9% in price to consumers. Thus household service changes were the biggest contributor to the inflation rate, 5% at the end of 2021. The immediate consequences have bee increases in domestic energy, of food and of transport. This hits lower income families relatively harder. 
Connecting EPC ratings with annual spend; 46% of UK housing is rated at C or higher and this half's median spend is £1057 per year. ForBand D (38% of low income households) this leaps to £1279, E £1667, F £2226, G £3071. This surely should direct where to send support spending. See DoBEIS Fuel poverty statistics. [8]

[8] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1056777/annual-fuel-poverty-statistics-lilee-report-2022-2020-data.pdf     

Fuel poverty is a measure of required fuel costs, not actual spend. A low income household is 60% of median income + (expected) fuel costs. For 2020, 27.6% of households were deemed as low income and 52% as low efficiency. Of low income households, 48% of these class as low energy efficiency, being in houses classed as D or worse.

[9] https://www.gov.uk/government/statistics/households-below-average-income-for-financial-years-ending-1995-to-2021/households-below-average-income-an-analysis-of-the-income-distribution-fye-1995-to-fye-2021

UK 2020 median income is £25706. Poverty threshold is 60% of this £15424. This disagrees with the ONS, which says £30800. I suspect that the lower one is after deducting 'housing costs'. Disposable income is what is left after paying income tax and council tax; it includes benefits and pensions. Both these figures disagree with the DWP output, which says median household income was £28550 or £24850, depending whether you deduct housing costs. For 2021, the DWP figure for the median is 28080, making the poverty line £16848, which agrees with figures I found in other places, £16840 ±40. After housing costs, the DWP says the median is £24550-24600.


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This page was moved from Essay 384 to form essay 386, 20220512-4.

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If gas goes up by a factor of four and a third of electricity is made from gas, and if gas was (before the changes) a quarter of the electricity price for the same amount of energy, by what proportion does the electricity price rise?  If you consume 3 parts of gas for 2 parts of electricity, how does will your energy costs change?

Let the 'before' figure for gas be x, so the 'before' price for electricity is 4x. The 'after' price for gas is 4x and the electricity cost goes up by a third of the gas increase, so by x. Thus the 'after' prices are gas 4x and electricity 5x.

For consumption cost, your 'before' figure was 1/5  ( 3x +2(4x)) = 11x/5 = 2.2x and your 'after' figure is 1/5 (3(4x) +2(5x) = 18x/5 =3.6x  So your energy costs expect to rise by 3.6x-2.2x) / 2.2x = 14/22, which is by 64% of what they were.

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