Cutting electricity bills to boost net-zero
The race to install heat pumps is a crucial part of the United Kingdom's net-zero ambitions. David Cowdrey, Acting Chief Executive for The MCS Foundation, calls for reforming electricity pricing to ensure heat pumps are always cheaper to run than gas boilers
The UK’s high electricity costs – some of the highest in Europe – are a major barrier to the shift to net-zero electric heating. A readjustment of electricity prices would ensure that people are incentivised, not penalised, when making the switch to heat pumps and moving away from fossil fuels.
There is cross-party consensus on the need to reform electricity prices. Although energy bills are coming down, around 6.5m households are still living in fuel poverty. And while electricity prices remain as much as three times higher than gas, there will always be an incentive to keep gas boilers going. Ministers and shadow ministers have said that needs to change.
The Climate Change Committee has recommended that levies on bills be redistributed.ı Around 15 per cent of an electricity bill consists of a range of environmental and social levies designed to support the growth of renewables in the UK. We believe that these levies can be removed from electricity bills, while still supporting investment and growth in the renewables sector.
The fairest way to do this would be to move environmental and social tariffs into general taxation, which would help to reduce fuel poverty while still raising enough to fund the infrastructure upgrades required for net-zero.
Independent energy analysts Cornwall Insight have said that, historically, the cost burden of decarbonisation and innovation has predominantly fallen on electricity consumers, based on the ‘user pays’ principle. This premise does not necessarily account for the broader societal benefits of decarbonisation and can act as a deterrent to the uptake of low-carbon technologies like heat pumps. Making electricity less expensive, by contrast, would boost government efforts to install heat pumps, which are recognised as the only viable option for decarbonising heating at scale.
“Due to current electricity prices, the average heat pump will run at about the same cost as a gas boiler, despite being at least three to four times more efficient”
The vast majority of homes will need to switch from gas heating to heat pumps in the coming decades, but despite recent growth in heat pump installations, we are still a long way off where we need to be. Industry representatives say that one of the biggest barriers holding back the heat pump market is electricity pricing. Due to current electricity prices, the average heat pump will run at about the same cost as a gas boiler, despite being at least three to four times more efficient. Reducing electricity prices would ensure heat pumps are always significantly cheaper to run than gas boilers, saving households money as well as cutting carbon.
There is an urgent need to make sure these reforms go ahead and are both thorough and rapid, so we can see electricity prices placed on par with other European countries, cut fuel poverty, and advance towards net-zero. We hope MPs in the new Parliament will support electricity price reform and shift levies off bills and into general taxation.
This article was originally published in The Path To Net Zero supplement circulated alongside The House magazine. To find out more visit The Path To Net Zero hub.
References
ı. https://www.theccc.org.uk/wp-content/uploads/2023/06/Progress-in-reducing-UK-emissions-2023-Report-to-Parliament.pdf
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