The UK Government has unveiled plans for seismic changes in how the country pays for its power supply. But there are fundamental shortcomings.
In many ways, it’s the news many people have been wanting to hear for years. Certainly since Russia launched its full-scale invasion of Ukraine, plunging Europe into an energy crisis that saw people burning furniture for heat or succumbing to the health risks of freezing cold homes.
This week, Energy Secretary Ed Miliband announced that the Department for Energy Security and Net Zero would begin the process of decoupling gas and electricity pricing. In theory, this means that fluctuations — and major spikes — in the price of fossil fuels would no longer trigger a rise in the cost of power produced by renewable sources.
We are currently staring down the barrel of a prolonged blockade of the Strait of Hormuz following the US and Israel’s decision to begin bilateral military action against Iran, effectively cutting off one of Europe’s vital energy supply lines. So this step seems sensible in the short term, especially with local elections looming and increasing unease about a perceived lack of urgency in Downing Street when it comes to calming measures at a time when people are genuinely worried about their ongoing ability to keep the lights on.
In the longer term, the move could deliver a debilitating blow to the myth that renewables are more expensive than fossil fuels. The current Middle East crisis will not be the last critical threat to energy supplies as we have known them for much of the last century. More pricing rollercoasters are inevitable when a resource is finite and concentrated in certain global regions. As such, if more and more people become aware that oil and gas cost increases are no longer impacting their overall household spend because of a switch to clean energy, that’s a good thing for net zero support.
At the moment, Miliband has confirmed the following key measures will be taken:
*Voluntary long term fixed contracts for low carbon power generators, meaning they can guarantee prices for customers — this is expected to cover around 30% of Britain’s power supply
*The Electricity Generators Levy will rise from 45% to 55%, meaning more tax from the high profits many fossil fuel companies benefit from when prices spike
*Grants for homes using oil and LPG will be increased to a maximum of £9,000, making fuel more affordable for those who have no current alternative
*Transitional Energy Certificates, which cover licenses for oil and gas exploration near existing tapped fields, are being reviewed, likely making it easier for companies to access remaining reserves
*Social housing upgrades — including solar panels and insulation — will speed up thanks to an additional £100 million in funding for the Social Housing Fund
*Schools and colleges will receive up to £40 million for rooftop solar installations through Great British Energy
*Brownfield land, industrial sites, and railway estate will be used to host smaller scale renewable infrastructure, potentially providing 10 GW of electricity nationwide (enough to power 5 million homes)
*The Reformed National Pricing Delivery Plan will be introduced to expedite infrastructure rollout necessary to realise £20 billion in ‘energy benefits’
*£90 million will be spent on supporting the expansion and construction of heat pump factories, with £30 million allocated to the development of new designs for domestically made equipment
*Planing reforms will make it easier to build renewable infrastructure
‘We welcome the government’s decision to decouple gas from the price of electricity. For too long, the value in our energy system has flowed to those at the top of the chain. Today’s move starts to turn that around,’ says Chris Norbury, CEO of E.ON UK. ‘We also welcome the planning reforms announced today.
‘The real way to make sure communities benefit directly from clean power is solar on the roofs of our schools, hospitals and public buildings or extending access to innovative projects like our solar sharing communities,’ he adds. ‘That’s clean power delivered where people live and work without unnecessary infrastructure costs, cutting bills for the services they rely on and a benefit communities can see and feel.’
Although broadly approved, some experts have pointed to shortcomings in the details. Like Russell Dean, Heat Pump Expert at Mitsubishi Electric, who described the current approach as ‘delinking’ rather than ‘decoupling’ gas and electricity. ‘While electricity remains more expensive than gas, this discourages investment in the technologies we need to decarbonise, cut UK emissions and future-proof the nation’s heating.
‘The government’s statement on delinking the price of electricity from gas is welcome,’ he continues. ‘However, this won’t fundamentally shift the market in the way that a full decoupling of electricity from gas would. This calls for even more government ambition, working with industry, to develop specific plans for how this will happen and when. This will allow homeowners and businesses to confidently make the switch from gas, and encourage industry to invest in the renewable sector for the long term.’
This week’s announcement follows years of discussion about the viability of gas setting energy prices in a country increasingly powered by renewables — with Britain receiving 50% of daily power from non-fossil fuel sources. Back in October, Will Rowe, Entrepreneur in Residence at Octopus Energy specialising in electrifying HGVs, and the founder of the company’s hydrogen offshoot, Octopus Hydrogen, outlined what he believed were the only effective ways of protecting consumers and businesses alike from rocketing gas and oil prices.
‘In periods of low renewables, you still need dispatchable power, and gas is great at this, so it will set the price. Breaking the link just creates problems elsewhere and would require new subsidies or shifting the costs into general taxation,’ his LinkedIn post reads. ‘The real way to cut electricity costs is not to fight marginal pricing, but to… Reduce the number of hours when gas is marginal (more renewables, more storage, more demand flexibility)… Strip policy costs off electricity bills…
‘Use locational pricing to cut curtailment costs… Invest in stability services that don’t require gas, such as grid-forming inverters… Accept that the last few % of hours don’t need to be net zero, gas is likely the cheapest way of covering them,’ he continues. ‘Designing expensive solutions for those predictable but infrequent periods only raises costs for everyone,’ he continues. ‘The focus shouldn’t be on breaking the link to gas. It should be on making sure we only use gas when we absolutely have to in order to minimise total system costs and lower electricity prices.’
Image: Jackson Simmer / Unsplash
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