Energy prices are going to remain high for a long time – independent energy research consultants Cornwall Insight thinks even to the end of the decade. That means our homes are going to be more expensive to heat and everything we buy and do will cost more because business energy prices will stay high too.
We are going to have to get used to it.
But while we must do everything we can to make sure the most vulnerable are protected, there is an opportunity here. High prices are forcing us all to take another look at something we took for granted and showing that investment could now be worthwhile. Home and business energy efficiency and retrofit could reduce UK energy demand by nearly 30%, and reduce prices too.
In the past, the sort of investment needed to do this has made little financial sense (although forward thinking business and homeowners have done it anyway). Payback times have been long – 15 or more years in many cases. Businesses struggle to plan on that kind of timescale and people usually move home well before they see the financial benefits.
But with prices predicted to be high for a long time these payback periods are falling fast. In the most energy intensive businesses the payback window can be two to three years – well within business planning cycles. Homeowners can also see this kind of payback time for some investments. Suddenly retrofit is starting to look worthwhile.
But before people plunge in they need to understand why energy prices are going to stay high for a long time. It helps to make those big decisions when we have more certainty about the future.
The good news is, if we carry on in this direction, in years to come we will have carbon-free, cheap and secure sources of energy in the UK.
Sustained high prices are not just the result of the war in Ukraine but also the result of the global shift towards carbon-free and renewable energy. France, currently one of the major European exporters of power to other countries, will see its generating capacity fall as its nuclear power plants age. Germany switched off its nuclear power capacity after the Fukushima disaster and is having to restart old gas power plants to meet its needs. The US and China are pumping subsidies into renewable energy, squeezing the supply chains for components and raw materials.
And as the geopolitics of power changes, so many Western countries are trying to decouple from the Chinese supply chain. China currently provides and processes almost 80% of the rare earth metals essential for renewable technologies and is also dominant in the manufacture of solar panels (also around 80%). This means renewable energy, while still far cheaper than fossil fuels, is seeing rising costs and companies are try to source parts from more closely aligned countries.
These changes are coming but will take years. Supply chains take five years or more to move, new mines and processing facilities can take a decade to begin production, grid systems take decades to lay and ever-increasing competition for resources means the queue is growing.
The good news is, if we carry on in this direction, in years to come we will have carbon-free, cheap and secure sources of energy in the UK. We are blessed with abundant wind and the potential for significant tidal power generation. We are also investing in hydrogen though this is, as yet, an unproven technology at scale. Predictions are that the UK will become a net exporter of renewable energy soon.
But what should we do to reduce our costs while we wait? Energy efficiency is the answer, one of the key pieces of the puzzle that would reduce energy costs for millions of people and businesses right now. Yet government is close to ignoring it.
Without government support, energy efficiency is not going to take off. Retrofitting will not become the norm until government offers grants and subsidies alongside legislation and tax incentives for low-energy homes. This injection of cash could generate hundreds of thousands of jobs across the UK, reduce bills for millions and tackle climate change. Most importantly it would help the industry to scale up, reduce costs and bring home and business retrofit to millions. Government subsidies kick-started the renewable energy industry; they could do the same for energy efficiency.
High prices are bad and will keep millions in fuel poverty and millions more paying high prices for goods and services for years to come, but every crisis presents an opportunity. If only the government would take it.
