The Prime Minister’s foreword to the Energy Security Strategy states that, to keep energy prices down in the long term ‘we need a flow of energy that is affordable, clean and above all secure.’ Given geopolitical circumstances, this focus on the security of supply is understandable and welcome, particularly where low carbon and renewable energy sources are seen as key priorities.
However, while the attempt to address the supply challenge is important and necessary, the Strategy missed an opportunity to target demand reduction, specifically energy efficiency that enables ‘doing more with less’. This is something that could have helped to increase energy security and deliver a range of wider societal and economic benefits.
In the Strategy, some reference to demand reduction was made with the announcement of a new £30 million Heat Pump Investment Accelerator Competition. However, electrifying heat and realising potential efficiency gains thereof is a bigger and more complex challenge than simply making alternative heat systems available. First, they need to be affordable and accessible. Second, efficient operation of heat pumps requires better insulated and more energy efficient homes. This is the very thing people need now to reduce their energy bills, regardless of fuel source and system type, and limit their exposure to all types of price shocks, including but not limited to the current problems with natural gas as the dominant heating fuel in UK homes.
As it stands, the way in which we live and do business in the UK means that our demand for fossil fuels, sourced from both home and abroad continues apace. Oil and gas are still enmeshed across our supply chains and, with the volatility we have seen in prices, this leads to serious impacts for the cost of living and doing business across our whole economy. Domestic heating, and the impacts already seen from the energy crisis on the ability of people to heat their homes, is just one such example.
The fundamental question – which is critical to the UK’s long-term energy security and that the Strategy fails to adequately grapple with – is how do we reduce our demand for fossil fuels, at scale and rapidly, in ways that are affordable and that operate within the constraints of a global environment that cannot withstand much further warming?
There is no doubt that transitioning to lower carbon heating systems will come at some cost to both governments and households. But if costs are to be mitigated and/or offset in the longer term, timely action is required to increase productivity and efficiency, particularly in delivering and using secure low carbon options that allow us to move away from volatile international markets.
Our research has shown that supporting and/or incentivising residential energy efficiency gains can bring real economic benefits as well as reducing energy demand. In recent analysis, we used an economy-wide model to understand the consequences of introducing a nationwide household energy efficiency retrofit programme in the UK. The programme would involve around £68.5 billion worth of energy efficiency improvements, delivered over 15 years, and would enable all households to reach an Energy Performance Certificate C rating by 2035 – a key government target and an essential part of making homes easier to heat and reducing bills.
As well reducing household energy demand for heating by just over 10%, we see that the programme can bring a range of economic benefits associated largely with household budgets being freed up and the creation of many new jobs. Depending on how the programme is funded, and how activity is spread between now and 2035, it could ultimately increase GDP by nearly £1.3 billion (0.07%) per annum, and create 22,545 new full-time jobs across the UK economy as efficiency gains are fully realised and household real incomes fully benefit. At the peak of renovations, the programme may require up to 137,000 skilled workers, which could be challenging in current labour market conditions.
This type of long-term energy efficiency programme, which many were calling for ahead of the release of the Strategy, could provide the confidence that will allow supply chains and new regional and national industry to develop around delivering vital low-carbon solutions. Crucially, once efficiency measures have been installed across sectors, it will enable businesses, supply chains and people to become more resilient to cost and price pressures. It also offers opportunities for the UK to gain competitive advantage in delivering the kind of low carbon goods, services and technologies that all nations in the world will need going forward.
It is this type of bold and joined-up thinking that we urgently need from government, but unfortunately the Strategy missed an important opportunity to deliver.
