Suffolk energy expert Peter Gudde explains why costs are going through the roof and what could be done about it
There has been variable media reporting and politicking going on recently about why energy costs are rising so dramatically and what can be done to avoid households being forced deep into fuel poverty this winter.
The depressing reality for 10 per cent of households in the UK in previous years will become one faced by many more this winter.
Some who will have never had to choose between heating or eating. As gas prices drive electricity costs, it really doesn’t matter how you use energy at home, bills will go up again.
The home energy bill is a composite of costs with just over half being the wholesale price of the energy itself. This is pinned to a global gas market experiencing unprecedented instability which translates through to both gas and electricity bills.
Around one fifth of the energy bill pays for the transmission and distribution of energy to our homes. VAT makes up 5 per cent while so-called environmental taxation is around 12p in the pound, loaded heavily on the electricity bill.
We could move these costs off the bill but ultimately, they will have to be paid somehow.
One way could be to spread the pain more evenly across both gas and electricity.
Another option could be to move the costs into general taxation which could be fairer since higher tax payers would then bear more, but this is not a vote winner in some quarters.
Scrapping VAT on home energy altogether is a hot topic if you are tuned into the current political leadership contest.
I wonder sometimes at the arguement being peddled by some politicians who say the solution to the energy cost crisis is to get rid of the ‘green’ taxes from our home energy bills. What they forget in their rhetoric is that half of these taxes go towards winter fuel payments and discounted home insulation for the most vulnerable.
If we had insulated our homes decades ago when energy costs were lower and raw materials cheaper, we would have been able to dampen the cost shocks we are now facing. Even more frustratingly if only we built well-insulated new homes.
Just a thought. How about the all-year benefit from living in a space which is buffered from changes to the outdoor temperature whatever the season, without the need for additional heating or air-conditioning?
Maybe the consequence of higher energy costs is that more householders will connect good home insulation with saving money and being more comfortable, not a ‘Saving the Planet’ thing.
I accept that the environmental levies also fund some of the renewable energy subsidies, representing about 6 per cent of the electricity bill. What should not be forgotten is that to address some of the extreme weather events caused by climate change we must remove carbon emissions from our energy supply. To do that we have had to stimulate electricity generation from wind and solar so that they could start to compete with gas and oil production.
Fossil fuel energy production has benefited for decades from tax breaks coupled with the inconvenient truth that the industry has not had to pay the real cost of its impact. New, subsidy-free onshore wind and solar can produce electricity cheaper than oil, gas and nuclear because we stimulated the renewables market in the UK using environmental taxation.
We can but hope that geo-politics and global economies settle back over the next year allowing the energy markets to calm down. In the meantime, what do we do to stop the next energy bill pushing more households deeper into debt?
First, Government needs to get its act together now on fairer energy taxation, moving the burden off electricity and redirect profit from those that are making money out of gas and oil production to those that are heading into fuel poverty.
We need far higher energy efficiency standards for new housing with the market model moving from sale price to whole-life cost price so home owners know the real value of buying and running their home.
Finally, we need to focus on boring old home insulation. We need a national long-term emergency plan to heal our sick homes, which fully engage and stimulate property owners to improve the home energy efficiency, saving everyone money as well delivering benefits for jobs, climate change, energy security, home comfort and...the list is long.
Peter Gudde is an energy adviser and environmental researcher