In January 2022, energy firm Ovo came under reputational fire from MPs, the press and social media for publishing tips on how to keep warm in the face of rising energy bills. Ovo’s advice to UK customers facing the prospect of an energy price cap rise included cuddling pets, eating porridge and, bizarrely, instigating hula-hoop challenges. The pearls of wisdom were widely condemned as short-sighted and tone-deaf in the face of growing fuel poverty (where over 10% of household income is spent on energy), with many still reeling from the financial impact of the pandemic and its myriad effects on the global economy. Little over a month later, Russian forces began military action in Ukraine.
With the price cap rising by a further 54% from April 2022, and an additional 80% increase planned for October 2022 to a massive £3,549 for a customer on typical use, the government eventually stepped in. Liz Truss’s first major announcement on taking up her position as Prime Minister was to cap household energy bills at £2,500 a year based on typical use, until 2024 – at an undisclosed cost that could be as high as £150 billion. As Truss said, “extraordinary times call for extraordinary measures”, but even with this help many are set to face fuel poverty in the months ahead.
The rise in fuel prices has widely been attributed to shortages of gas and oil caused by the war in Ukraine, but other factors including the pandemic, post-Brexit trading rules, a global supply chain crisis, and the end of pandemic support have contributed to the UK’s cost of living crisis. The impact of rising prices is wreaking havoc on the global economy.
Data centres and the cost of energy
In an increasingly digital world, the price of fuel has a vital role to play. Equinix and Digital Realty, the two largest data centre operators in the world with a $102 billion market capitalisation between them, recently said they were stockpiling additional diesel in anticipation of blackouts and to avoid potentially catastrophic service disruptions. Others are engaging in the corporate equivalent of putting on an extra jumper: BT Group will also see large costs to its business from its need for data centres, and is looking to cut power to non-critical services to save server costs in the coming months.
Other data centres, operated by those who engage in the energy-intensive process of mining cryptocurrency using the ‘proof of work’ mechanism, are finding themselves frustrated by the double whammy of increased fuel costs and the slumping values of many digital currencies. NFT trading has also taken a hit, with US dollars traded and resell profit dropping by 25% and 46% respectively. Many NFTs require cryptocurrency to purchase, making investments an energy- and cost-intensive transaction.
Crypto platforms move to cut energy consumption
After eight years of delays, this September the Ethereum cryptocurrency platform is looking to shift to the more environmentally-friendly ‘proof of stake’ mechanism through an update known as the Merge. It’s a high-stakes move, with $50 billion of user funds potentially at risk if the transition does not go smoothly, and the fact that the update has already faced long delays compounds the anxiety surrounding it.
If the Merge does deliver, it is expected to cut the Ethereum platform’s energy consumption by a remarkable 99%, leaving many proof of work mining firms with concerns about how competitive or profitable they will be. Sceptics who have held out from investing due to crypto’s poor environmental reputation may start to take an interest. The Merge will also potentially eradicate the gas fee transaction of up to $200 currently payable by anyone sending Ether. With the current state of energy prices, that’s a tempting prospect.
The effects of rising fuel costs on those who work from home
Those who are not engaged in the world of cryptocurrency will also be feeling the effects of rising fuel costs in an increasingly online world. While many modern electrical appliances are much more energy-efficient than their equivalents of days gone by, the devices that are truly guilty of high wattage energy use tend to be those connected to the internet. Many fields of employment require employees to operate a computer for hours, and leisure screen time has also increased since the Covid-19 pandemic. 83% of households in the UK have more than one smartphone (and all the associated charging apparatus), and multiple smart devices are now connected to the internet in our homes.
UK government aid introduced for those compelled to work from home during the pandemic could cease as working remotely becomes a choice, and energy costs will remain a key concern for those who work from home. Those anticipating a brutal winter in terms of heating and energy costs are also lamenting the savings that households should have been making in the summer months. August’s record temperatures saw offices and residential buildings alike trying to battle the heat with air-conditioning and fans. Servers, infamous for the heat they generate, also require intensive cooling to cope with demand. With growing concerns that climate change will cause this trend of warmer summers to continue, energy bills will not relent in summer months, causing further tension from customers and strain on the economy.
Energy, reputation and future implications
Centrica, British Gas’s parent company, reported adjusted operating profits of £1.3 billion in the six months leading to June 2022. Public perception increasingly equates the reporting of profits with disregard for customers, rather than with effective business practice. Even when British Gas announced that it would be donating 10% of its controversial profits to those in fuel poverty, media coverage responded with scepticism, as estimates suggested the donation would likely benefit only 0.5% of the company’s customers. Shell reported $11.5bn in the same quarter and faced a similar backlash.
In the midst of hard times, reporting what may have traditionally been seen as good news regarding company profits must now be considered through the reputational lens of a media and public feeling the pinch. Shell CEO Ben van Beurden commented that underinvestment in renewables programmes is partly to blame for the current surge in energy prices: “There is a responsibility with making money and that responsibility is that we continue to invest in energy security… and in the energy transition because ultimately that will make society less dependent on the volatility of oil and gas.”
This volatility is inextricably linked to our ability to rely on digital technology, and to technological innovation for the future. Our digital world has high energy demands, and green credentials can no longer be seen purely as a reputational benefit for companies looking to navigate this crisis. 2022 has demonstrated that if we do not make sustainable power part of the digital ecosystem, a cold winter may just kill off growth for seasons to come.