Behind the headlines and the announcement of the Energy Price Guarantee, there are many changes afoot that could see sweeping change to the UK’s energy system over the coming years. Some of these changes should help to lift people out of fuel poverty and tackle climate change, but others will not. Despite this, we shouldn’t underestimate the changes that are taking place and the impact that they will have for years to come.
The first change is a reform of the energy market itself. Government has begun a consultation to decouple electricity prices from the most expensive source. At the moment this is gas, but in the past it has been nuclear and renewables. Currently the price we pay for energy is based on the most expensive form of energy produced. This is why we end up in the current bizarre situation where gas prices are dictating the costs of energy, despite the fact that renewables and nuclear energy are no more expensive than they were a year ago. This skews the market and means some renewable energy and gas suppliers are ‘raking it in’ right now, with other companies about to go bust. This system, along with the price capping mechanism, is clearly not working. As a result, the Government review of market mechanisms is clearly necessary and welcome. However the market is structured in the future, it will favour some producers over others. Government must change the system to ensure we weight the right issues; production of our own energy in the UK and energy that helps us towards our Net Zero targets.
This is where the second, and most worrying, announcement comes in. The Government has confirmed it will grant up to 100 more gas/oil drilling licenses in the North Sea and will also allow fracking to resume. Whilst this may provide a small boost to the Scottish economy and provide a small amount of energy security, these two announcements are not compatible with the UK’s Net Zero targets, nor will they do anything to tackle the immediate problem of energy prices. Fracking (that could provide some energy within 6 months) would make up such a small amount of the UK energy mix that its impact on energy prices will be unnoticeable. New gas and oilfields in the North Sea will take years to come online. Given the impact on both our countryside and the global climate, this policy seems short-sighted. At the same time, there was no balancing investment in renewable energy in the announcement, a bizarre omission that would have helped the UK achieve energy security and hit our Net Zero ambitions.
There was also another glaring omission from the announcements that could have a genuine impact on energy prices soon, with no mention of investment in insulation and retrofitting. As I’ve commented before, the cheapest energy is the energy you do not use and insulating our homes can save 20-30% on our bills, which is no small sum in the current situation. UK wide insulation programmes could be ramped up quickly over the next two to three years, and estimates for the cost of making every home in the UK EPC rated C are about £60bn. This is half the figure government will use to subsidise our energy bills over the next two years. If Government is serious about reducing people’s bills this is the quickest and most effective way to do it in the short term. The fact there was no mention of it during the energy announcement is disappointing at best. Organisations like Severn Wye insulate hundreds of homes each year but with proper Government investment we could be insulating tens of thousands each year, reducing bills, reducing CO2 levels, creating jobs and boosting the economy.
The Government announcement has gone some way to addressing the short-term crisis in energy costs, but it is a missed opportunity to really change our energy system. By focusing on short-term solutions to the energy crisis the Government runs the risk of compromising our future sustainability and energy security. Our economic and environmental stability hang in the balance.
