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Analytics, 03 September 2022

The losers of the energy crisis

The current global energy crisis doesn’t seem to show any signs of wearing down. Global economies, stock markets, and supply chains are just but a few areas that have taken hits from the crisis. Even the quest to clean energy has been affected, with Norway’s last remaining coal mine on a geopolitically important Arctic archipelago set to stay open for two more years. Europe’s energy crisis is prompting countries to extend the life of polluting technologies.

The obvious culprit for the crisis is the war in Ukraine. The UK in particular is arguably worse hit by the crisis and the energy inefficiency of the average UK home makes the situation even worse. German fuel prices have also sky-rocketed and mobility, even by public transport, has been affected.

The European Union looks to come up with joint solutions, with options including an emergency block-wide price cap, and – more fundamentally – a decoupling of electricity and gas prices, a move backed by several member states and adopted as an “Iberian exception” this summer by Spain and Portugal with the aim of slashing electricity bills

Not everyone is unhappy with the energy crisis, however, as energy stocks have soared since dipping to the negative during the pandemic. Companies involved in energy storage, particularly battery technology, have emerged as rare winners in the crisis.

In this article, we analyze the biggest losers of the energy crisis.

The UK

UK Household budgets have taken the biggest hit in the energy crisis that has hit Europe and by extension, the world. According to the IMF, no country in western Europe has been hit worse than the UK. The country’s over-reliance on gas to heat homes and produce electricity means the disruption of the supply of gas by the war in Ukraine sent gas prices soaring.

The UK also has the least energy-efficient homes in western Europe. according to the climate think tank E3G – where a British home drops by 3C in temperature, German homes drop by just 1C even when both countries are experiencing the same weather outside.

UK’s government has set up plans to curb the energy crisis, with suggested solutions ranging from insulating households across the country and prioritizing heat pumps over gas boilers. Placing the emphasis on wind and solar energy would also help reduce the UK’s dependency on fossil fuels, and renewable energy sources are approximately nine times cheaper than gas.

Germany

Last year in Germany, Russian gas accounted for around 55% of the total gas consumed in the country. With Russia drastically cutting off the supply. Germany’s Uniper, the highest-profile corporate victim of Europe’s energy crisis so far, reported a 12.3 billion euro loss ($12.5 billion) due to Russian gas supply cuts. Germany’s largest importer of Russian gas needed a 15 billion euro government bailout last month after Russia drastically cut flows, forcing the company to source oil from other nations at a higher cost.

Transport in the country has also become significantly expensive with the ever-skyrocketing energy prices. In the last three months, the energy tax on fuel was reduced and regional public transport costs had declined. However, energy prices continue to soar as tax breaks are revised, and bus and train fares are back to their usual levels with further price hikes imminent.

The German government has had to revive the production of coal, with a power station once marked for closure in the town of Bexbach being resurrected. The government is looking at long-term solutions like boosting renewable energy sources and importing liquified natural gas (LNG).

Manufacturing

Many manufacturers are energy-intensive, and manufacturing businesses are on the receiving end of soaring global energy prices. According to the latest CIPS Manufacturing PMI in the UK, there is a recorded seismic shift as the top-line measure of activity fell into negative territory for the first time since May 2020 when stringent Covid lockdown measures were in place. This has led analysts to suggest that the manufacturing sector could be in a recession. “Today’s data suggests the manufacturing sector is already in a recession, ahead of the rest of the economy,” said Thomas Pugh, an economist at RSM UK.

As a much more intensive consumer of energy, the manufacturing sector has been hit even harder by the huge run-up in energy prices over the last month. This inevitably leads to reductions in output as particularly energy-intensive firms cease production and once viable firms face becoming loss-making. The chemicals processing, minerals processing, metals manufacture, and construction services subsectors are the most affected sub-sectors.

With UK household budgets squeezed, a drop in demand for household goods cripples the sector further. This limits producers’ ability to pass on cost increases. Companies are exploring renewable energy in solar panels to curb the energy problem.

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