Fossil fuel price spikes caused partly by the war in Ukraine are indirectly increasing inflation. Rapid decline in the cost of renewables mean they outcompete fossil fuel powered electricity generation on cost in most of the world. Cheaper renewable power not only means less oil and gas, it also has the potential to lower inflation.
But, despite the UK’s progress towards clean energy, today’s fossil fuel price rises have a hidden risk for cheap renewables. As we highlight in this briefing, the Bank of England’s raising of interest rates to cut inflation has the perverse effect of making renewables more expensive to build.
We propose how policy makers can avoid this unintended consequence and aim to keep energy prices and inflation low.
Heather Plumpton, senior policy analyst, firstname.lastname@example.org