The UK government needs to think beyond the short term to truly tackle the energy crisis, according to a new report from consultancy Stonehaven.
Beyond Sticking Plasters: Cost of living & the energy crisis looked at how UK consumers are reacting to the current energy shock, and what their expectations of the government in response to it were.
There were four main takeaways from the research, including that consumers are as concerned about future shocks as they are about the current energy crisis. They want certainty, and believe government should focus on ensuring such an energy crisis does not happen again, rather than short term action on bills.
Stonehaven’s report follows the default tariff price cap increasing by 54% amid record high global gas prices, which have significantly strained Britain’s energy system and are expected to continue to do so through the upcoming winter period. In response to this crisis, the government announced a £15 billion policy package in May, close to 1% of national output.
“Today, governments need to frame their responses so that they align with longer-term objectives. In the short term, that means resisting the urge to push energy prices below their true marginal costs. That simply encourages consumers to use more of the energy sources whose relative security is responsible for driving prices so high. It also rewards Vladimir Putin,” the report states in its introduction.
Of those surveyed, 59% believed radical change to the energy system is the only way Britain can become more energy secure in the future. Of three options presented to consumers, 60% chose the “Energy Island” system, whereby Britain is almost entirely self-sufficient using onshore and offshore renewables, supported by nuclear power and extensive storage.
Overall, 77% said that Britain needs to become more self-reliant with regards to energy.
The least popular of the options presented to consumers was “Decarbonisation on the Cheap”, which was based on continued fossil fuel use with carbon capture and storage (CCS).
Stonehaven’s second big takeaway in the report is consumers have a stoical attitude towards bill increases. It found that they have a realistic but pessimistic view of energy bills, and expect price rises of £1,793 for the year between April 2022 and April 2023.
This follows the price cap rise meaning bills jumped to a cap of £1,971 for the summer period, while research from Cornwall Insight recently suggested it could rise to nearly £3,000 over the upcoming winter period.
But despite the stoicism, 67% of those surveyed think the government should spend more money to resolve the current energy crisis, with 51% saying they are very concerned about being able to pay their energy bills this year. Just 27% think the focus should be on a short term plan to help families with their energy bills through the upcoming winter.
The third takeaway was that consumers are cutting back on spending on things such as streaming services, leisure spending and holidays, and expecting to spend more on areas such as their weekly shop.
For example, weekly spend on socialising is expected to fall by £23.20, while weekly shopping is expected to increase by £29.30, highlighting the wider squeeze on finances in addition to energy bill increases.
The final takeaway points to the increasing schism between the ‘have’ and the ‘have nots’. Of those surveyed, 95% said they were either open to or had already taken small actions to mitigate the impact of the energy price increase. But when it comes to larger scale interventions – such as the installation of a heat pump or solar panels – a distinct division linked to income emerges.
Those who earn £65,000pa are more than two times more likely to invest in these long term solutions that those who earn below this.
“Only the better off have the financial means to invest in technologies, such as low carbon heat, solar panels and insulation that would give them greater control over their energy expenditures,” the report states.
“They also have a clear incentive as high energy prices are making investments in energy efficiency seem more financially attractive. But the same technologies are also necessary to support the next stage of decarbonisation, along with accelerated investments in such things as nuclear, renewables and energy storage.”
Stonehaven has suggested six actions could be taken by the government to help tackle the energy crisis, in part by unlocking greater investment amongst these higher income consumers, which would both help to reduce the nation's demand for foreign fuels helping to bring down costs for everyone, and lead to the cost of low-carbon energy efficiency technologies falling faster due to the high take-up, thereby reducing the cost to the taxpayer of providing assistance for lower income households to take up such measures.
These actions include bringing in a floor price for consumers to sell surplus domestic solar generation. Currently prices range from 1.5p/kwh to 7.5p/kwh, when wholesale prices are consistently above 10p/kwh, Stonehaven noted.
To address this disparity, the government should mandate that all retailers pay at least 50% of current wholesale prices for any power offtake from domestic solar.
Secondly a salary sacrifice scheme should be developed for funding energy efficiency measures, collective assistance schemes should be developed – this would work similarly to Solar Together, whereby a collection of households can together order solar panels, helping to reduce the cost through bulk ordering – and the ECO4 scheme should be expanded.
The fifth recommendation is that local knowledge should be tapped, with the report pointing to the failures of the Green Homes Grant overall but the success of its Local Authority Delivery component as evidence of the benefits of utilising local knowledge when rolling out support schemes.
Finally, the government should look at giving households a fixed price ‘block’ of energy, as originally suggested by economist Professor Dieter Helm in his Cost of Energy Review in 2017. This would allow poorer households for example, to access perhaps 200-300kWh per month at a very low price before facing a full-market tariff for energy consumed above this. This could both help protect consumers from price spikes and incentivise efficient energy use.
Stonehaven’s report follows the Climate Change Committee’s progress report highlighting energy efficiency as one of the most significant sticking points of decarbonisation in the UK, as it warned the country is currently set to miss its net zero goal.