A report by Cornwall Insight, commissioned by the MCS Foundation, which funds initiatives for the decarbonisation of homes, heat and energy, shows consumer savings of up to £300 a year could be made by removing levies.
Social and environmental levies placed on electricity bills are, in part, why electricity is more expensive than gas. Electricity cost is a barrier to the uptake of heat pumps in the UK; incentives like energy bill savings are one way the government can accelerate the switch to decarbonised heating.
The report by Cornwall Insight, an independent energy consultancy, suggests reducing “disproportionate” energy costs by shifting levies into general taxation, enabling households that switch to electricity-powered heating to save up to £300 on energy bills. It further states that dual fuel households would see savings of between £130-200. Moving levies into general taxation would not mean additional costs for gas boiler heaters.
Kate Mulvany, principal consultant at Cornwall Insight, said: “While the electrification of heating is widely accepted as critical to the UK’s net zero ambitions, we must recognise the financial barriers households encounter when looking to make the transition over to electric heating and low-carbon technologies.
“Our report illustrates that through addressing the price inequality between gas and electricity, households could be empowered to make environmentally friendly choices and save money at the same time.
“By reducing the cost of the electricity transition, we can help foster a cleaner, healthier, and more resilient society for future generations.”
The analyst makes three recommendations to the government to address the price inequality between gas and electricity and support the adoption of low-carbon technologies. It calls for detailed options to rebalance policy costs to reduce the amount paid by electricity dependent customers and the implementation of targeted support measures to mitigate the risks for vulnerable groups during the energy transition.
Finally, it calls on the government to continue encouraging the use of low-carbon heating technologies.
Notably, the UK government household energy bill support schemes cost approximately £42 billion during a period of high wholesale prices that led to a price spike. Changes to policy costs will affect the Exchequer, the report concedes, but the current system is costly.
Cornwall Insight notes that the previous government had intended to provide steer on rebalancing gas and electricity prices by the end of this year, favouring electricity for domestic heating.
A ‘wide coalition of support’
David Cowdrey, acting chief executive at the MCS Foundation, said: “There is a wide coalition of support for reforming electricity prices and implementing change should be a top priority for the new government. Moving levies off electricity bills into general taxation would incentivise heat pump uptake and tackle fuel poverty, a win-win.”
Cornwall Insight is not the only organisation to push for these reforms. EDF and Octopus Energy recently launched Electrify Britain, with the ambition of pushing the Labour government to make major changes to the UK’s energy systems, including fair electricity pricing and electrifying home heating.
Electrify Britain suggests reallocating policy costs to other sources, like gas, as an alternative to general taxation that Cornwall’s report also explores.
