International gas markets this week sent out distress signals over an impending shortage. But the message from the British government is the opposite: we are not running out of gas.
Not just gas, but the right gas. The the government could boast that the country imported no Russian energy in June for the first time on record. Meanwhile, domestic gas production in the UK increased by 26% in the first half of the year.
What we don’t have is time. In the lost weeks of political hot air, there has been little progress on how to keep homes warm this winter. The new prime minister will have less than four weeks before energy bills indexed to wholesale market prices jump, with the price cap based on average usage set to be set at nearly £3,600 on Friday.
Of course, the problem also got significantly worse. The price cap is expected to rise to over £4,500 in January. According to EDF, half of British households are facing energy poverty this winter, defined as spending more than 10% of their income on energy. A report from the University of York suggested an even higher proportion, particularly among large families, single parents and retired couples. The blow to households seems greater than the financial crisis and more concentrated among the poorest.
The support would ideally be substantial but well-targeted, a combination that requires planning time. Scottish Power’s £100billion proposal to cap energy costs at £2,000 funded by government guaranteed loans from commercial banks is hugely expensive because it is so crude, as the explained Lex. It defers the question of whether household bills or taxes will eventually bear the strain, but involves paying private funding for something the public sector could do. It protects suppliers against rising defaults, hence broad industry support. It also helps wealthier households too much.
Refining it, however, runs into a problem that hampers the likely alternative of more means-tested payments: defining the group of people most in need of help.
Since Scottish Power first offered a version of its fund in April, this has multiplied well beyond the 7.3million recipients of means-tested benefits. The Resolution Foundation think tank points to the problem at the edge of the cliff, where a household simply does not qualify for support, as well as the need to help large energy consumers such as large families.
His preference, a social tariff that would reduce bills by say 30%, would attack usage. But his idea of targeting households where no one earns more than £40,000 runs into a database problem, essentially forcing HMRC systems to connect to other parts of government. It’s not impossible but it takes time: basically, we should have started months ago.
It is the same elsewhere. In fairness, the Energy Department is trying to fast-track elements of complex, long-term market reform, such as the decoupling of electricity prices and gas prices in the domestic market.
The government would like to switch generation companies from old-fashioned renewable energy bond contracts, which effectively pay wholesale gas prices for renewable energy, to cheaper fixed price agreements on 15 year. These contracts alone represent around 18 GW of wind power, or a quarter of the UK’s generating capacity. “If you have a cheap, low-carbon block of electricity, you can sell it directly at a cheap fixed rate to vulnerable consumers,” said Adam Bell, policy adviser at consultancy Stonehaven and a former energy strategist at the government.
This year could and should have been devoted to improving the paltry insulation rate of UK homes from 200,000 a year to the 2 million the market regularly managed before 2013. It was an obvious and no-brainer choice. regret six months ago. Instead, the government is currently relying on common sense and hardship to get people to reduce their gas consumption by 8% simply by adjusting their boiler settings to run more efficiently.
The scale of the problem means there are no great options for protecting households, particularly because the support needed is essentially unlimited. The risks are a bigger, broader and more expensive program than necessary, or an inadequate stopgap that leaves many people behind. However, we are also trying to buy back time that has been wasted.