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26 August 2022

There’s a new factor pushing up energy prices, and it has nothing to do with Russia

The heatwave has left rivers and reservoirs across Europe at record low levels, and it's driving up the price of energy even further.

By Emma Haslett

In October last year, after six years of construction, the National Grid launched its long-awaited North Sea Link (NSL), a €1.6bn (£1.35bn), 450-mile undersea cable connecting Blyth in Northumberland with the Norwegian village of Kvilldal. The idea, enthused the company in its press release, was that it would allow Norway to send the UK some of its abundant renewable energy, specifically electricity generated through hydroelectric power. The cable had a capacity of 1.4 GW, enough to power 1.4 million homes.

But now the NSL – and the four other cables that connect the UK with Belgium, France and the Netherlands, the other countries it imports from – risk lying idle, after the global heatwave caused a drought that is beginning to pose such a risk to energy generation in Europe it could become a factor in the cost-of-living crisis.

The UK is a net importer of electricity: according to figures from the Department of Business, in the first quarter of this year it imported 4.9 TWh, about 6.4 per cent of the 76.1 TWh it consumed in the same period. In the first quarter of this year, Norway became its biggest source of imported electricity: it imported 1,781.3 GWh, compared with 1,536.1GWh from Belgium, 1,597.6 GWh from the Netherlands, and 1,297.6GWh from France.

In recent weeks, though, that supply has come under threat. Like other parts of Europe, Norway has been hit by a drought that has left its reservoirs at about 60 per cent capacity, below its 20-year average. Residents of Oslo have been asked to limit their time spent showering and to turn off the tap while they brush their teeth – the situation has become so bad that hydroelectric generators have been asked to cut down on the amount of electricity they export.

[See also: Energy bills are set to surge again after price cap update]

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On 8 August Tejre Aasland, the country’s oil and energy minister, said electricity production in the south of Norway was down 18 per cent on the year before. “We cannot completely rule out a period of electricity rationing in the spring,” he warned, adding that the government will “prioritise the filling of our hydropower reservoirs and the security of supply for electricity, and limit exports when the water level in the reservoirs falls to very low levels.”

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Norway isn’t the only country whose energy production capacity has been hit by the drought. In mainland Europe, power stations in Germany that rely on the Rhine to ship fuel may begin to suffer as parts of the river dropped to their lowest level at this time of year in 15 years. “When the river level is too low, the maximum size ship that can go through the river decreases. You transport less coal at a time, which is raising coal prices,” says Anise Ganbold, research lead in global energy markets and hydrogen at Aurora Energy Research.

It’s not just Europe where the heat is having an effect. In Asia, where recent temperatures have also broken records, demand for gas has been pushed up by prolific use of air conditioning, which will push up prices across the rest of the world. “High temperatures in Asia means higher cooling demand. That means higher global gas prices,” says Ganbold. “The UK does import quite a lot from the global LNG [liquefied natural gas] market. So that would mean its gas prices are higher.”

There’s another problem with gas, too. “Heatwaves can cause gas plants to struggle or even fail, so this can cause some short-term outages and lead to power price spikes.” Solar plants are similar: “When it gets too hot, you sometimes have to turn off your solar plants, because it becomes too warm for them to function.”

For the UK, all this may result in even higher energy prices. This morning (26 August), the energy regulator, Ofgem, announced the annual price cap on dual-fuel bills will increase to £3,549 per year in October. The consultancy Cornwall Insight predicts that it will rise to £5,387 in January, and £6,616 in April. The main contributor to this is the war in Ukraine, which has forced Europe to find non-Russian sources of gas and pushed up prices in the meantime. But the longer the drought goes on – and in the UK, the Centre of Ecology and Hyrdology has warned it may be until October – the more influence it will have on energy prices. It seems the weather is on Vladimir Putin‘s side.

This article was originally published on 9 August and has been kept updated with the latest information.

[See also: Are Russian forces in Ukraine utilising Western fears of a nuclear disaster?]

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