Long-term policies to protect basic energy needs, reduce bills and reduce carbon emissions
Russia’s invasion of Ukraine and the UK government’s failure to reduce the country’s reliance on gas have combined to put enormous pressure on household finances. While wholesale energy prices have started to soften, the early withdrawal of government support means households continue to grapple with enormous budgetary pressures. Addressing the pain is our current energy market and billing system, which fails to protect the basic needs of the community, leaving many households unable to choose between heating or eating, and over 40% unable to afford a decent standard of living .
Current government support for energy bills fails households in four important tests: (i) provides protection around minimum basic energy needs, (ii) provides stability and confidence for future bills, (iii) promotes fair outcomes, and (iv) speeding progress towards our climate goals. By April 2024, even the existing shortfall in support will disappear, but NEF analysis suggests bills could still be 70% (£900) higher than pre-crisis (2021) levels Up to 25% (£2,100) of disposable income (less housing costs) spent on energy.
Given the failure of the current energy billing system, a new approach is needed.Our review of proposed options suggests that a system could protect basic energy needs for free or at low cost while imposing a premium for higher levels of use (sometimes called of‘The “Rising Headquarters Tariff” or RBT) has a number of advantages. Notably, under our proposed version of the RBT, all households would benefit from a safety net to meet their basic energy needs. A premium range can incentivize domestic investment in energy efficiency and renewable energy.
In this paper, we explore the potential of our proposal, a of‘National Energy Security” to meet household needs and achieve our four policy objectives (i – iv). We present our system in two illustrative forms, one involving three price tiers and one involving two price tiers. These tiers aim to Prices for ensuring a minimum energy distribution (estimated to be around the level needed to power essential goods) are 50% below pre-crisis levels. We show how to protect the price of this essential energy band, even at current abnormal market prices The same goes for levels.
To ensure that our proposed premium tiers do not have negative outcomes for energy-intensive, low-income households, we show how our proposal could be combined with a set of easily enforceable quotas and an inexpensive social tariff. Our resulting packages deliver highly progressive and highly targeted outcomes. In fact, under normal (pre-crisis) conditions, 80% of households were the winners of our proposal, with the biggest gains so far – £250 on average – occurring among the poorest 30% of the population.
With energy prices much higher than in 2021, it is too early to withdraw government support for households. Today, entering 2024, further direct bill support is required. Our proposed system provides a more efficient system for getting government help where it is needed. By freezing the cost of our lower tariffs – which are specifically linked to basic energy needs – and only allowing prices to rise at a premium, we can not only provide equitably distributed support, but also provide additional incentives for decarbonization efforts. At a cost similar to the expected revenue from the government’s recent windfall tax on energy producers (£8bn-£10bn), a system has the potential to deliver bill reductions for 94% to 98% of households, and even more than 70% Billings for lowest-income households are below pre-crisis (2021) levels, despite widespread wholesale costs.
A key feature of our national energy security is not only its protection and support for low-income populations, but its potentially game-changing impact on the nation’s decarbonization process. Incentivizing wealthy households to accelerate investment in home energy efficiency and renewable energy is a high priority. Both of our proposed schemes reduce the average payback time for such investments by 20-30% under pre-crisis (2021) conditions and provide greater incentives. To build on this progress and provide support to households in need, we propose a system where the imminent entry of a household into premium electricity tariffs acts as a trigger for action by the energy provider and dispatches a person who can advise the household The Remodeling Coordinator’s potential options for families to reduce their bills.
The UK urgently needs reform of the energy billing system and continued financial support for households facing fuel poverty. The National Energy Guarantee presents a unique opportunity to meet this need in a cost-effective manner, while providing a safety net for all households, extending support equitably to the least well-off, and advancing the process of decarbonisation.
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