Ofgem's lower price cap should not lead to complacency – fuel poverty remains a big problem in the UK
Tomorrow, Ofgem will announce new energy price caps for July to September 2024. Although energy costs are expected to fall, energy prices remain one of the main drivers of inflation. Although the inflation rate fell to 2.3%, Polls released this week The research found that 86% of Britons believe the cost of living crisis is not over yet.
since the peak January 2023the energy price ceiling has been reduced to £1,690 a year For the average household using both electricity and natural gas. Although this is a drop from the highs £4273 It is still 32% higher than before the energy crisis began. higher energy bills It also exacerbates fuel poverty Growth of 67% between 2020 and 2023 means households will need larger Reduce energy costs Escape fuel poverty.
Some households are able to mitigate the impact of sky-high energy bills by reducing energy use, but when we look at the data, we can see that the picture is not consistent across the country.
Figure 1: Household electricity consumption falls across the UK, with differences between regions
Electricity consumption fell in all local authorities between 2019 and 2022, except for a few local authorities for which no data were available (Figure 1). Demand fell between 4% and 15%, with no immediately observable patterns within and between countries and devolved regions.
We found that some local authorities saw significant reductions in electricity use, ranging from 12% to 15%. These include Cannock Chase, Fareham, Havant, Rotherham and Redditch. Despite these declines, fuel poverty levels vary widely across the regions, ranging from 7% to 15% — Compared to 2022 UK national average13.4%.
Some local authorities have experienced significant reductions in gas consumption, by 15% to 18% between 2019 and 2022 (Figure 2). Natural gas demand, controlled by a thermostat, is much more flexible than electricity, whose consumption cannot be easily reduced. Households had fewer energy-saving measures that they could take to reduce their electricity use, which could explain why natural gas consumption fell more than electricity consumption during this period.
Figure 2: Household gas consumption declines across the UK, with regional differences
Previous research conducted in the UK has shown that for every 1% increase in gas prices, demand for gas is likely to decrease 0.1% and 0.28% . This suggests that the decline in natural gas consumption we observed is consistent with expected behavior in response to rising energy costs. Our analysis shows that for every 1% increase in natural gas demand between 2019 and 2022, natural gas demand will fall by 0.34%.
Some homes will reduce energy consumption by reducing excessive energy use – for example by installing wind breakers or no longer overheating the home. Other households may be forced to reduce energy use in ways that compromise comfort and health—for example, by not turning on the heating even on cold winter nights. Looking at the data, it is difficult to distinguish between the two.
Households in areas where demand has been cut the most are likely to experience some very difficult winters.
Falling energy consumption has not offset rising levels of fuel poverty. It's a stark reminder that we urgently need to make our homes more energy efficient so we can reduce our energy bills.
Over the past decade, the UK has made significant progress in shifting electricity generation towards renewable energy sources. The proportion of renewable energy power generation has increased significantly Increased from 7.7% to 43.4% in 20102020. The installation of insulation, vital to improving energy efficiency and reducing energy bills, has collapsed 95% between 2012 and 2019. If we had insulated our drafty homes over the past decade, the harmful effects of sky-high energy bills could have been mitigated. A Great home upgradesUse public investment and the National Retrofit Taskforce to upgrade our homes to EPC C by 2030 so they stay warm and don't rely on expensive fossil fuels.
The energy crisis has also highlighted weaknesses in the way our retail energy markets operate. At NEF, we have always called for National energy security, a new energy safety net that guarantees every household, regardless of financial status, access to a certain amount of basic energy, free or heavily subsidized. If a household uses too much energy, energy costs will be higher, encouraging the wealthiest households, which consume the most, to install energy-saving measures.
Better Homes and Gardens upgrades, combined with the National Energy Guarantee, can provide a comprehensive approach to mitigating the impact of expensive energy bills on households across the country. Energy price caps may be falling, but the cost of living crisis remains. The UK remains vulnerable to future energy crises and needs to start developing policies to respond to these crises and make us more resilient and secure.
Picture: iStock
