Can we cut energy bills?

Can we cut energy bills?

Apologies to non-UK readers (of which this blog has many) but for the last month or so the UK media has been full of suggestions of how to cut energy bills. Various ideas have been put forward of how to achieve this and this blog entry will consider those and some other ideas. Before you read on don’t get too exited, most of the bill is not under government control and none of the suggestions will cut much money off your bill as this graphic below from the Department of Energy and Climate change (DECC) via Transition Basingstoke suggests. I would also add to overseas readers, don’t be complacent, one minute you have loads of natural gas the next you are having to buy it on world markets and the price of gas and electricity is shooting up.

 

Factors that make up a UK energy bill. Source DECC.

The blog will mainly talk about the 9% that is due to “Green measures” but will address some other aspects of energy bills.

The first question to address is as very few people have (although I did hear someone on radio ask this question last week), should we cut energy bills? This blog is not climate sceptic, if you want that, go somewhere else. We believe and make it clear in our book we need to use energy conservation and renewables to manage both peak oil and climate change. As I wrote before energy is both too cheap and too expensive as this graph below from the Institute of Fiscal studies makes plain (1).

 

% of UK income spent on energy (source IFS)

% of UK income spent on energy (source IFS)

Energy expenditure makes up just 3% of the richest 10% of the UK population’s expenditure, but 16% of the poorest 10% of our population’s expenditure and lies in between the two for the rest of us. Interestingly its been higher for all groups pre-privatisation (of which more later in the next blog). So we have one group who don’t notice their bills and another group who are struggling.  This is  especially true when you add food and transport costs which have shot up over the last 10 years or so in tandem with the oil price. Food will be at least another 15% on top, maybe more. So a third of the poorest income group in societies expenditure has gone on essentials before they start.

I would make the following points.

  • This trend of higher energy costs looks likely to continue as we wrote in our book . Even if some renewables like solar PV look like producing very cheap electricity down the line, the need to switch to electricity use for heating and transport will raise demand very steeply. This is unlikely to make electricity cheaper.
  •  The only way to get people to cut energy use is to raise the price. We need to cut our carbon emissions and peak oil means we are going to have less energy to play with. Higher gas prices have cut domestic use drastically in England and Wales with Scotland also showing a substantial fall http://www.bbc.co.uk/news/business-23723385.
  • Lastly higher energy prices mean renewables become economically viable faster and subsidy can be removed, which is what we all want to see.

In part two of this post I examine ways we may be able to square the circle and make energy simultaneously cheaper for the poorest but expensive enough to get people to conserve it. Also I will demolish some of the other ideas going round to reduce energy bills.

Neil

1) From the Institute of fiscal studies report “Inconsistent taxes on energy use raise costs of meeting carbon targets and need to be overhauled”. http://www.ifs.org.uk/publications/6917

 

 

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