Energy co-ops weigh the costs of the world’s power supply crisis

Suppliers in the sector are struggling with rising costs – but there is also hope that the crisis will spur a stronger drive to renewables

The energy crisis is forcing price hikes around the world; in the UK, millions are in fear of fuel poverty as winter looms, and many businesses are concerned about unaffordable fuel costs, prompting new prime minister Liz Truss to announce a price cap, leaving the typical domestic bill at £2,500.

The country’s biggest energy co-op, Your Co-op Energy, a joint venture between Octopus Energy and the Midcounties Co-op, has posted a Q&A for members on its website, noting that “the government price cap has increased by almost £58 per month for a typical home, which means that families all across the country are wondering how they can take control and do something to manage their energy bills”.

It says it “takes great pride in our relationship with our customers and we understand that this is a strenuous time for everyone”, but adds, “tariffs have gone up this much because it costs us five times more to buy energy now compared to last year. Our new variable price is protected by the price cap.”

Co-op Energy says there has been an average increase of 54% in the cost of energy price cap was last set six months ago. “If you’re coming off a fixed price, your increase may be more,” it warns.

One question it addresses relates to the cost of renewable energy: the crisis was sparked by soaring gas prices resulting from the Ukraine war, but 100% renewable tariffs are also rising.

Co-op Energy tells customers: “It’s down to the way the market works. The grid sets a single half hourly price for all types of energy in the system. That price often ends up based on the most expensive source in the mix which is generally gas, which is why even on green tariffs right now, gas is setting the price.”

It adds that the price change only affects customers on flexible tariffs, not its fixed tariffs, and is contacting those affected to discuss their options. “We’re committed to making renewable energy affordable for everyone, so we’d prefer to never raise prices,” it adds. “Our relationship with Octopus Energy has meant that we have been able to offer alternatives during this hard financial time.”

Meanwhile, Community Energy England (CEE), which represents member-owned renewables across the country, welcomed the energy cap – and suggests its members take advantage of the government advice that “companies with the wherewithall should be looking at ways they can improve energy efficiency and increase direct energy generation” by contacting local firms.

But, it warns, the energy cap “does not solve the problem and comes packaged with a lot of downsides”, with millions already struggling with the cost of living. Even with the price cap, “potentially more than 7 million households will be struggling to pay energy bills – and will be going cold and/or hungry this winter”, it adds.

Related: Co-ops, community business and the energy crisis

The government’s support package could cost upward of £100bn, to be funded by borrowing and ultimately borne by the taxpayer. “This money will effectively add to the excess profits of the oil and gas giants who should be contributing to paying for it,” says CEE, criticising the decision not to levy a windfall tax on gas and oil industry profits.

It is also concerned about government ambitions to increase gas sourcing from the North Sea, and to lift the ban on fracking – which would not cut the price of gas, or energy bills.

“They will also temporarily suspend all ‘green levies’ on electricity bills which pay for many measures in the energy transition,” CEE adds. “They made no statement about how these things will continue to be paid for or where some of them will simply stop.”

It notes the government promise of an Energy Supply Task Force “to focus action on securing domestic energy supply to reduce energy price shocks from international factors”, a fresh look at the regulatory system, and a review to ensure that Net Zero will be achieved by 2050 in a way that is pro-business and pro-growth. This will be conducted by Chris Skidmore MP, described by CEE as “a previous energy minister, who set up the Net Zero Support Group of Tory MPs to counter the [climate-sceptic] Net Zero Scrutiny Group led by Steve Baker and Craig Mackinlay”.

The crisis is a global one, prompting comment from energy co-ops around the world. In the Philippines, the Association of Mindanao Electric Cooperatives (Amreco) – a coalition of 34 electric co-ops – warned that the Ukraine crisis has inflated the price of the coal that generates much of the power on the island. 

Amreco president Jose Raul Saniel, in a statement to the press, said: “Why are we being blamed when we are just the collectors of the payments for different charges imposed by power suppliers, transmission operators, and government taxes?” 

Sergio Dagooc, from the Association of Philippine Electric Cooperatives (APEC), agreed, and called on the government to take action to stop the independent power producers dictating energy prices.

In the US, NRECA, the apex for rural electric co-ops, is running a weekly fuel price watch – a useful resource in a country where retail electricity rates have risen nearly 16% between August 2021 and August 2022, according to the US Department of Labor.

Many co-ops across the country have been forced to increase rates, but some are working to limit the impact; in Wyoming, commercial electricity rates in June 2022 were 20% lower than the national average – with the Basin Electric Power Cooperative board voting on 10 August for a rate decrease that will save its members approximately $33.5m in 2023. 

General manager Todd Telesz said: “One of the unique benefits of the co-operative is that when a co-op does well financially, its members do, too. The margins generated at the co-op benefit every single member at the end of the line.”

The co-op – whose electricity portfolio includes coal, gas and renewables –  also voted in July to approve a US$15m (£13.3m) bill credit on members’ July power bills as well as the retirement of $13.2m (£11.75) in patronage capital credits. Wyoming news site Cowboy State Daily also reported that wholesale power co-op Tri-State reduced its rates by 2% in March 2021, and then another 2% in March 2022. 

“The not-for-profit co-operative business model supports power affordability. With rugged terrain and fewer customers per mile, it is more expensive to deliver power in the West. Co-ops operate at cost, and return any excess revenues to their members,” said Tri-State vice-president, communications, Lee Boughey. 

Tri-State has been embroiled in disputes with several member co-ops which are seeking to leave before their contracts expire, because they want to diversify their sourcing to include more renewables. In response, Tri-State is looking to reduce its own reliance on fossils and industry observers hope the energy crisis will spur more efforts in the sector to transition to renewables.

In a blog for the Natural Resources Defense Council, Jeffrey McManus, government affairs coordinator at the non-profit Center for Policy Advocacy, says the recent federal Inflation Reduction Act “will be a game-changer in accelerating the transition away from fossil fuels to a clean energy economy that will lower utility bills for families, support good-paying clean energy jobs, and tackle the climate crisis”.

He highlights how four Republican-led states – Texas, Oklahoma, Iowa and Kansas – are among those leading the way on wind power, adding that across the US as a whole, rural electric co-ops “have more than tripled their renewable capacity between 2010 to 2021”. This is partly driven by the fact that renewables are cheaper – but McManus notes that some co-ops, including Tri-State, are locked into coal contracts and are paying more for fossils than they would for renewables. 

The energy crisis is also helping to spur a new generation of energy co-ops in the US – this time in the cities, in the form of community solar.

Among those leading the way is Solar United Neighbours, which works with communities across the US to develop neighbourhood groups of 50-100 people which can install solar panels. It lists groups in a dozen states, with more than 7,500 homes investing a total of $162m (£144m).