The UK Government’s announcement of a £100 billion package of energy price support alongside a range of promises for energy reform has major implications for consumers, the taxpayer and industry. Our Low Carbon Business Unit is working hard to provide information and advice to those seeking to make sense of it all. In an article originally prepared for Heating and Ventilation News, James Higgins, Partner Low Carbon, discusses the energy price cap freeze from industry perspective.
Few will have missed new Prime Minister Liz Truss’s announcement for supporting households and businesses with energy bills this winter. The impact of this intervention will be felt by all of us in our pockets over the coming months and then of course by taxpayers over the long-term.
The package, live from October, is expected to reduce inflation by 5%, which cuts the current rate of inflation in half. Businesses, charities and public sector organisations will have their energy costs capped for six months. This is to be capped at the same price per unit that households pay. Those on heat networks, park homes and heating oil will have a separate fund.
The bill freeze has been welcomed by many and could save lives this winter by enabling people to heat their homes affordably, yet there are some who question its efficacy (available to all including the super rich) and the impact on taxpayers who ultimately foot the bill. This debate is inevitably coloured by wider political views on the economy such as national or public ownership of infrastructure.
Another group of stakeholders following this announcement closely are those working to update or maintain buildings from the heating and energy efficiency sector, including many readers of H&V News. The economic impact of the price freeze will almost certainly impact consumer behaviour, reducing the individual benefit of everything from a boiler service/upgrade to loft insulation.
For example, sales of domestic solar installations have been soaring over the past 12 months. Figures from trade association Solar Energy UK show that across 2022 more than 3,000 installations have taken place each week, up from 1,000 installs per week in July 2020. It will be interesting to see how consumers react to government stepping in and effectively reducing the payback on everything from loft insulation to solar installs.
Analysis undertaken by some of my Gemserv colleagues shows that heat pumps will remain competitive with gas heating systems in terms of running costs (ignoring capital costs for a moment). Even at the frozen rate, heat pumps with a seasonal efficiency of 3.1 or more will provide savings on household heating bills when compared to a gas boiler. Had the freeze not been implemented, heat pumps operating at even lower efficiency may have offered even greater savings.
My own view is that the package is the right thing to do in the current circumstances and somehow I don’t think consumers will be deterred from investing in low carbon generation and energy efficiency. Public consensus is that energy will remain expensive for a long-time whilst government support is not guaranteed. Using less makes more sense than ever from an economic and planet perspective and I fully expect this winter we will see below average (temperature adjusted) gas and electricity consumption.
Wider implications for sustainability and action on climate include the removal of green levies on energy bills for two years, lifting of the fracking ban, a new licencing round for North Sea oil and gas, and plans to be a net energy exporter by 2040, through renewable generation, nuclear and fracking. A review of net zero has also been promised which will be led by Chris Skidmore MP with the brief to ensure net zero is achieved whilst supporting economic growth.
Of course, the final, and arguably most important, piece in the jigsaw is additional help for households and businesses to reduce their consumption — which will permanently reduce energy bills. In addition to existing support for fuel poor homes, the Chancellor has announced a further £1bn of funding over three years for energy efficiency. However, there are many who felt this fund could, and should, have been greater. As each unit of energy is now effectively subsidised by the taxpayer, surely it makes more sense than ever for Government to find further support for demand reduction. It will be interesting to see how each element of the plan set out in the first few days of Liz Truss’s government develop — doing nothing is surely not an option.