The Global Energy Crisis

Energy costs are increasing at an alarming rate, globally sparking worry about how they will afford to pay heating and electricity bills during winter.

A cascade of events, commencing from the geopolitical conflict with Russia and the consequent gas cuts as well as the ongoing inflation after COVID-19, caused the wholesale prices of electricity to increase by more than 200% in Europe in the past year.

Electricity bills in Spain had a stable average of €50/kWh until the end of 2021. However, in a span of three months, the electricity prices skyrocketed to ten times more. Although the prices slightly declined during summer, there is a significant number of households that are spending a large portion of their income on heating, cooling, and other electricity expenses.

Italy raised concerns over the high price of gas provided by Dutch TTF due to the significant cuts on their natural gas supplies from Gazprom the Russian-owned gas supplier. Dutch TTF anticipated month-ahead gas prices for September 2022 to reach €320/MWh. The high utility prices are alarming the general public, but it is also highlighting the weaknesses in the energy security of the EU states.

Europe is not the only region becoming increasingly concerned about the high costs of utilities, other geographies are also facing similar challenges and they are responding by relying on fossil fuels. India and China are facing unexpected large-scale power cuts and as a quick solution, they are leaning on a carbon-heavy energy source: coal. In the midst of fuel poverty and the approaching winter, both countries are risking increasing their carbon emissions and backtracking their climate change mitigation ambitions.

As efforts to address climate change are being scaled back, the impacts of climate change on the energy infrastructure are progressively becoming dangerous. The increasing number and severity of extreme weather events such as heatwaves and hurricanes are testing the resilience of the power grids and energy plants.

In August 2022, when the temperatures in France passed  37ºC during the summer heatwave, the French energy provider EDF had to reduce output from their nuclear power plants. While this was necessary to ensure a safe cooling process of the nuclear plant, the French electricity grid struggled to meet the demand. The striking results of Hurricane Fiona on Puerto Rico’s electricity grid are also distressing, leaving more than a hundred thousand households still waiting for electricity two weeks after the disaster. While geopolitical clashes limit natural gas scarcity, climate change itself is becoming an imminent threat to global energy security.

COVID-19 and The Cost-of-living Crisis

When the energy crisis worsened towards winter, many developing nations were already in the middle of a cost-of-living crisis. The inflation of food and fuel prices after the pandemic caused many families to financially struggle. In June 2022, the Tracking SDG 7 Committee's Energy Progress Report showed how COVID-19 slowed down the momentum of achieving universal energy access. Similarly, United Nations Secretary-General Antonio Guterres also noted his concerns for the developing countries still financially recovering from Covid-19 and the consequent cost-of-living crisis. His statement further exacerbates the concern that fuel poverty will become more prevalent.

Albania, Mongolia and Armenia are signalled to be the hotspots for the spikes in energy prices by The Addressing the Cost of Living Crisis in Vulnerable Countries report by UNDP.

The same report also warns about the severe impacts of recession-induced poverty in developing nations such as Yemen and Ethiopia. States which are already financially vulnerable circumstances due to social instability, conflict and lack of infrastructure are at risk of worsened public health and lack of access to essential appliances during winter.

There is a proven track record of lack of heating and electricity in households causing public health emergencies even in economically developed countries. According to the public health provider of the UK, NHS, England spends £1.3 billion each year to treat illnesses caused by cold homes. If the energy crisis persists, hospitals and other health services will not be able to operate at efficient levels. The anticipated public health crisis will have unseen financial consequences for developed nations, as well as for those who are unable to bear such expenses.

Policy Interventions

Many governments are producing fiscal policies to ‘cushion’ the blow of the energy crisis. EU governments are pledging to fund the payments of the households with the lowest income; others, such as Spain, recently announced emergency energy prices and profit caps to overcome the burden of a lack of gas. Similarly, the UK pledged a generous $66 billion package to cap wholesale electricity and gas costs for domestic and business users for at least six months. However, many hotspot nations signalled for energy poverty do not have access to such funds to cap their energy markets. Hence, there is an immediate need for international cooperation to ensure an equitable and quick energy transition which is only possible through the support of international organisations such as the IEA and UN.

As with any other financial crisis, there are those who benefit and those who are adversely affected by global fuel poverty. The combined profits of the energy companies almost reached $100 billion at the beginning of 2022. Consequently, oil and gas companies were criticised by Mr Antonio Guterres for earning and celebrating "record profits" in the middle of an energy crisis. To resolve these challenging times, the UN leader advised member states to apply windfall taxes on the oil and gas sector to fund rebate policies for vulnerable communities and the green energy transition in developing nations. He emphasised the need for a secure and resilient energy transition from fossil fuels to renewable alternatives while maintaining the energy democracy.

In conclusion, energy price rises are likely to hit lower-income households disproportionately in economically stable countries while developing nations are expected to face severe fuel poverty over the winter months. This emphasizes the importance of taking a cooperative and equitable approach to resolving the problem of energy poverty and guaranteeing that every household has access to reasonably priced and dependable energy.

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