Rising energy bills require brave leadership, not cuts

Solving energy problems requires more than just putting on a jumper. Steve Parsons/PA

The nights are drawing in, leaves are changing from green to gold, and energy suppliers are announcing price hikes. Along with animals disappearing into hibernation, energy price rises have become what looks to be a permanent sign of the start of winter.

Last week, Npower and Scottish Power joined British Gas and SSE in announcing this years’ price rises, attributing increases to a mixture of wholesale, network, and policy costs. With energy bills at record levels and more households falling into fuel poverty, parties have been keen to offer solutions. But none have identified the two most fundamental things missing - significant levels of demand reduction, and strong, courageous leadership.

The most radical solution to rising energy bills is Ed Miliband’s 20-month price freeze, during which time he would impose reforms on the industry: separating the energy generation and supply arms of the Big Six energy companies, reintroducing the electricity pool (a previous form of market structure, replaced by the current arrangement in 2001), scrapping Ofgem, and forming an Energy Security Board.

But the price freeze in particular has been very popular among the electorate - though less so among commentators, such as Professor Dieter Helm who warns “it is hard to think of any measure better designed to undermine incentives to invest”. He is however more complimentary of some of Labour’s other proposals, as are several of the Big Six’s chief execs who appeared before the Energy and Climate Change Committee yesterday; agreeing that “virtual separation” of supply and generation was a good idea - although exactly what that might entail isn’t yet clear.

The coalition, caught on the hop by Miliband’s proposals, offered only two rather weak suggestions. The first was that people should switch energy supplier to find a cheaper tariff. Given that the latest figures from Ipsos Mori suggest that 60% of people have never switched energy supplier, I suspect that few will be motivated by the suggestion now.

The second response came initially from George Osborne, but was reiterated by David Cameron last week, saying he would “roll-back” the green and social charges in customer bills which make up approximately 8% of the average dual-fuel bill. The largest share of these go towards the Energy Company Obligation (ECO) - a policy that pays for improving energy efficiency for poorer households. None of the Big Six or Ofgem seem to agree on the true cost of ECO, with estimates ranging from £47-£60 per household, although there is agreement that the charges are significant, and set to rise. But in spite of the costs, ECO has had a positive effect: nearly 245,000 installations in nearly 215,000 homes in its first eight months.

What Osborne and Cameron seem to miss is that the energy efficiency measures these levies pay for are the best ways to create lasting protection for consumers, particularly the fuel-poor, against rising energy bills. The less energy required, the smaller the impact of rising prices. Any response that leads to the elimination of one of the only policies that protects the fuel poor is completely counter-productive.

With polls from Carbon Brief, and ICM showing that only 7-11% of the public believe green taxes are pushing up bills, this appears to be little more than a short-sighted bid to appease the Tory right, at the cost of the worst off.

Nick Clegg offered a small flicker of hope last week when he pledged not to turn his back on the poor or the environment, suggesting that levying green and social charges from taxation may offer an alternative solution. This proposal received wide support many of the Big Six firms yesterday, who said that if ECO was funded from general taxation, those savings could be passed directly to consumers.

Shifting the burden of paying for such policies from bills to general taxation is a potentially progressive step, but is not entirely risk free. James Murray, editor of Business Green, warns that it may not be as straightforward as it seems. As well as disrupting current projects in the short term, future projects would be exposed to greater levels of political risk as efficiency schemes compete for public cash.

Reducing energy demand by increasing efficiency is one of the most effective ways to beat price rises. Rather than cutting such schemes, the UK needs significantly more. Current legislation requires new homes to be highly efficient (at least by UK standards), but existing homes have no such requirement and the forthcoming requirements on rented properties is very weak.

Legislation must go further, and consumers cannot be expected to go it alone. A legal requirement for all homes to be of a certain standard, as proposed by Dr Brenda Boardman, backed by a means-tested financial support mechanism, funded from taxation, could provide enormous protection for the whole of the British public against future energy price rises.

Reducing the effect of future price rises is essential, but so too is cutting off the problem at source. Wholesale gas prices are responsible for the greatest percentage of bill increases, but the government can do little to control this. While the elimination of green levies is something the government can do to reduce bills, a more determined transition to a clean energy system, free from the whims of international gas markets, would be more logical.

It seems that underlying all of this is the problem of leadership. To stand firmly behind the need for an energy transition, while forcing disengaged consumers to insulate their homes and ensuring the funds are there for them to do so, requires real political courage. Given we are in a world where the suggestion of wearing jumpers at home quickly leads to considerable back-pedalling, the required sort of leadership seems in short supply.

A version of this article appeared on the University of Exeter’s IGov blog.