Britain’s fuel poverty problem is largely the creation of government policies and in particular the £10 billion a year subsidy cost of renewables.
Government is now worried about the combined effect of lockdown and climate policy costs on low-income households and has published a set of measures intended to offer relief to these consumers: Sustainable Warmth: Protecting Vulnerable Households in England. However, the policies announced, an extension of the Warm Home Discount and reaffirmation of support for energy efficiency measures, are inadequate and dodge the main problem which is the £10 billion per year subsidy surcharge on electricity to support renewables and climate policies. (See Office for Budget Responsibility).
There are approximately 2.2m households in the UK that use electricity for heating. Of these, about 1.8m are in England. Such households are typically of lower income, with about a third having an annual income of less than £14,500 a year. (See Ofgem.)
A representative electrically heated customer will use over 10 MWh of electrical energy per year, greatly in excess of the 3-4MWh of electricity used by a gas-heated household.
Due to the imposition of climate policy costs on electricity these low income electrically heated households are much more severely affected by climate policies than gas-heated households.
Climate policy costs are adding over £10 billion per year to the national electricity bill, about a third of which will be paid by households directly through their electricity bills, increasing the price by about 40% in comparison to what it would have been in the absence of policies. It should not be forgotten that the rest of that £10 billion is passed through to households by industrial and commercial consumers in the general cost of living.
Assuming a price of about £180/MWh (18p/kWh) an electrically heated household will be paying between about £1,800 per year for heating, of which about £500 a year is due to climate and energy policies.
Government’s principal response to this problem is to extend the Warm Home Discount, which is a cross-subsidy costing about £350m a year, whereby suppliers must give a £140 discount on the electricity bill of around 2.2 million vulnerable households, and is applied between September and March. This cost is recovered from other households.
For electrically heated low-income households this discount will be welcome but inadequate.
The secondary response of Government is to reaffirm and re-announce its commitment to energy efficiency policies such as the Energy Company Obligation, the Home Upgrade Grant, the Green Homes Grant, and regulations requiring landlords in the Private Rented Sector to apply energy efficiency measures.
The effectiveness of these energy efficiency policies in addressing is slow at best, due to the lag in applying measures, and highly uncertain because the measures are difficult to apply and, as is notorious, frequently underperform. It’s unlikely to help soon, or at all.
The problem here is that the UK government cannot bring itself to admit that the fuel poverty problem as it affects electrically heated low-income households is largely the creation of government policies and in particular the £10 billion a year subsidy cost of renewables, one-third of which hits households through their electricity bills and the remainder through the general cost of living as businesses pass on their costs.
And that latter point reminds us that there is more to fuel poverty than the cost of electricity, serious though that is. The real issue here is poverty, low income and squeezed income. Government energy and climate policies are increasingly large part of an overall hardship problem.
Mr Kwarteng’s measures are wholly inadequate, barely scratching the surface of the electricity bill issue, and leaving the cost of living problem caused by his climate policies quite untouched. As the UK shifts towards electric heating to reduce emissions this problem, already serious, will only get worse.