Written evidence submitted by the Energy Saving Trust (WIN0020)

Energy Saving Trust is an independent organisation dedicated to promoting energy efficiency, low carbon transport and sustainable energy use to address the climate emergency. 

Our work focuses on reaching net zero targets by taking action to reduce energy consumption, installing new infrastructure and accelerating a move to sustainable, low carbon lifestyles. 

A trusted, independent voice, we have over 25 years’ sector experience. We provide leadership and expertise to deliver the benefits of achieving carbon reduction targets: warmer homes, cleaner air, healthier populations, a resilient economy and a stable climate. 

We empower householders to make better choices, deliver transformative programmes for governments and support businesses and community groups with strategy, research and assurance – enabling everyone to play their part in building a sustainable future. 

 

  1. What role did the UK grid play in the high domestic prices of winter 2022-23?

The unprecedented rise in gas prices has delivered a major shock to the UK energy system. Whilst nobody could have predicted the Covid pandemic followed by the Russian invasion of Ukraine and the impact these had on energy prices, what these events have highlighted is the UK’s aging grid infrastructure and over-reliance on fossil fuels. A number of barriers are still to be overcome for the grid to be able to provide the clean power needed to end reliance on gas and cut energy costs as quickly as possible.

 

Enabling faster grid connection

With the UK continuing to face an energy crisis, connecting more clean and cheap energy generation to the grid is vital and, in the last two years, demand for renewables has increased dramatically, with connection applications doubling. However, this has put pressure on the existing backlog of projects, meaning over 600 projects are currently in a queue, facing wait times of up to 15 years. This is clearly not in the best interests of consumers who have been unable to access energy at the lowest cost, with estimates from the Energy and Climate Institute (ECIU) that consumers could miss out on £1.5 billion of savings on their energy bills each year because the stifling in deployment of offshore wind.[1] This backlog is largely due to the current connections process, which was originally focused on connecting a small number of large fossil fuel plants every year has not kept pace with the rapid changes occurring in the energy sector.[2] It has been unable to facilitate the connection of a growing volume of renewable generation and other necessary technologies quickly or efficiently enough. This is particularly the case for the cheapest forms of energy – onshore wind and solar which, if connected sooner, would have been able to generate at a lower cost and shielded people from some of the soaring energy costs caused by gas prices. At present, there are about 200GW worth of electricity projects waiting for a grid connection, which is enough to power 150m UK homes according to research by Bloomberg New Energy Finance.[3] Although the Government, Ofgem and energy networks recognise the need for reform, faster connections are urgently needed to facilitate quicker, more coordinated, and efficient deployment of low carbon technologies to the electricity grid to lower prices for consumers.

 

Increasing investment in grid capacity and renewable generation

Despite the share of renewable generation increasing significantly - making up 40% of electricity generation in 2022[4] - and cushioning against high energy prices last winter, concerns that the required scale of new infrastructure may not be delivered by the current market arrangements remain unresolved. In order to meet a higher demand for electricity, significant investment in generation and networks is required. Latest government figures reveal the annual growth rate of the UK’s renewable capacity is behind the rest of the world, with capacity increasing to 9.67% globally per year compared to only 4.45% in the UK over the past three years.[5] Insufficient grid investment will also signal uncertainty to the renewables industry who need assurance of capacity in order to build at the scale we need. Financial enablers for infrastructure build must be taken forward at pace, so that investments can be planned, consented and built in sufficient time.[6] Delays to grid investment which then delay renewable deployment also contribute to higher costs for consumers, as they will miss out from renewable energy coming online over the next few years, such as wind farms, which the ECIU estimate will mean that if the gas crisis was repeated in ten years’ time, savings could reach £26 billion per year, equivalent to £330 per home.[7]

 

Increasing storage deployment

As well as generation projects, energy storage projects are also stuck in the pipeline, which has come to significant cost at a time when the UK is becoming more reliant on flexibility within the energy system. As part of the System Operator’s (SO) role is to rebalance the system and manage network constraints, payments are made to generators in constrained areas to reduce output, known as ‘curtailment’, and to procure flexible electricity supplies at higher cost. Rising gas prices made the practice more expensive, as gas power stations were increasingly used to support the system when wind power was curtailed. This meant that in 2022, the UK spent £215m on turning windfarms off, and then another £717m turning on gas power plants to replace the lost wind power.[8] These costs are ultimately passed onto consumers. Long-duration storage projects have been left in limbo in recent years without an updated policy from the UK Government. This policy certainty is now needed to ensure more wind energy can be stored for use at a later time, particularly during periods when there is less wind and sun, thereby eliminating the intermittency that makes the SO rely on expensive fossil fuels. 

 

Increased flexibility will drive down costs

What did help drive prices down last winter was the introduction of the Demand Flexibility Service (DFS) which saw consumers play a crucial role in reducing their energy demand at peak times to help reduce stress on the grid. Whilst this scheme could have been introduced much earlier on in the crisis, the initiative showed the willingness of consumers to take an active role in using energy more flexibility which reduces wholesale electricity costs for everyone, even for those who don’t or aren’t able to participate. During the winter, DFS delivered 3,300MWh in electricity reductions at peak times across the 22 events, which is equivalent to the amount of electricity that 9.9mn households would use at peak times across a single hour.[9] With Cornwall Insights[10] estimating that household flexibility could deliver an annual saving of £14.1bn/year in 2040 for consumers and the energy system, we welcome the decision for the DFS to run again this winter. This would be further enhanced with the provision of impartial advice and a publicity campaign as we argue in Question 2 below.

  1. What more could have been done to prevent price shocks being passed to consumer bills?

Whilst the Government’s energy support package was crucial to supporting households deal with skyrocketing energy bills, a consistent lack of forward-looking, demand reduction policies failed to additionally shield households from the rise in energy prices.

Improving the energy efficiency of homes is a key part of permanently reducing energy bills and reducing our vulnerability to international fossil fuel markets; upgrading the least efficient homes currently rated ‘D’ or worse for energy performance to ‘C’ would save households over £500 per year, an aggregate saving of £8bn when the energy price guarantee was in place.[11]

Prior to 2013, previous energy efficiency schemes in the UK were successful in reducing gas demand, contributing to nearly a 30% reduction in domestic gas use between 2005 and 2013. Existing energy efficiency installations between 2009 and 2019 will save 6 million homes £200 on annual gas bills from April 2022,[12] and the Energy Company Obligation (ECO) programme has saved low-income customers £17.5bn in lifetime energy bills since 2013[13], at a cost of £5.63bn, for which the average saving for homes improved under ECO at £290 per year. However, except for the long-running, fuel poverty focused ECO programme, attempts to improve energy efficiency at scale have been sparse in England, in large part due to market uncertainty from short-term focussed policy. After 2013, the year David Cameron “cut the green crap”, the number of homes having lofts insulated dropped by 92%, and rates have not recovered in the decade since. Had support for energy efficiency measures remained, the ECIU[14] estimate that 10 million more homes would have been insulated between 2013-23, saving £4.5bn in energy bills – this saving increases every year support isn’t put in place and continues to leave families in a worse position to weather the current crisis.

In response to the energy price crisis, most European countries – particularly through the winter of 2022 – launched government communications to inform citizens about the energy saving actions they could take, framed as an urgent national priority. Many were highly effective.[15] Whilst the UK Government ran the ‘It All Adds up Campaign’ to encourage households to carry out actions and behaviours that would help cut their energy costs, there are significant lessons to be learned from international responses. Most notably, reducing energy demand should be put at the centre of any communications. Following the French example, a behaviour change campaign focused on engaging households and businesses with a national energy demand reduction target could offer significant benefits. France has already achieved the 12% reduction it set out in Phase 1 of its “energy sufficiency” campaign. he UK Government has a national energy saving target of 15% by 2030, but this is little known outside policy circles. Instead, that target could at the centre of a wide public behaviour change campaign with progress towards the target monitored and reported on.

Whilst the energy crisis increased homeowners’ awareness of the benefits of energy efficiency, many would have encountered significant barriers if looking to make changes to their homes. The current retrofit process is complex and confusing, leaving people unsure where to start or where to go for trusted information for which measures might be suitable for their property. To make these changes confidently households need consistent, comprehensive, independent and tailored advice that offers them clear direction and support to help them better insulate their homes to reduce the energy they need to use.

This is particularly the case for households in England where advice provision is currently patchy dependant on the existence of local support services, so it is not surprising that the delivery of energy efficiency policy is variable and patchy across the UK. We know from our work delivering advice programmes in Scotland that free, impartial and tailored advice can have a positive impact on the rollout of retrofit and low carbon technologies by offering a consistent, reliable approach and a simple consumer journey. It is available to householders (owner occupiers, tenants) and smaller private landlords. Each year the network helps more than 130,000 customers in Scotland. The lifetime carbon saved by customers using the network in 2021/22 is estimated to be more than 496,000 tonnes CO2, and total lifetime energy bill savings from the network since its inception are estimated to be well over a billion pounds. The advice is delivered online, by phone and in person, helping to overcome the behavioural and financial barriers to the installation of energy efficiency improvements and renewable home heating. It works alongside existing advice providers with strong referral paths into and out of the service, offering a simple customer journey.  After receiving advice from a HES adviser, 47% of customers had installed at least one energy efficiency, low carbon heat or renewable energy improvement and 38% of customers were planning to install at least one improvement in the next 12 months. Of the measures installed, among the top five that were attributed to HES advice in 2021/2 were air source heat pumps, solar PV and loft insulation.[16]

In response to the energy crisis, other countries around the world introduced policies that aimed to cut both costs and carbon emissions.[17] When looking at the international advice landscape a key feature of successful schemes is offering all households tailored and impartial advice. For example, France’s large-scale, wrap-around retrofit scheme was set up in 2022 (building on existing initiatives) and offers comprehensive support and financial assistance programme for homeowners. In 2022 alone, 670,000 renovated homes were delivered, including the installation of 156,000 heat pumps. The service also offers joined up support for owner occupiers to act on a range of energy saving measures with online tools, assessments, retrofit management support and lists of accredited installers. France’s advice service has considered the customer journey and sought to make this simple wherever possible. The provision of personalised expert advice ensures that households install the right measures for them and can be confident in the benefit these will deliver.

  1. How should energy companies respond if customers cannot pay their bills and what actions should they not have recourse to?

As a result of the energy and cost-of-living crises, more people are in debt to their energy suppliers than ever before, with the amount owed at a record high.[18] Despite energy costs dropping from last year’s record hights, bills remain nearly double where they were in January 2021. This means that this winter will also be difficult for many. It is therefore important that energy suppliers are mindful of the extraordinary circumstances many households are in, which they have had very little control over. Energy companies should also ensure all consumers they are in contact with have access to any support they may be entitled to. This is in light of new figures published by Age UK[19] show that the Energy Bills Support Scheme Alternative Fund, designed to give £400 to households that receive their energy supply indirectly via a landlord, site owner, or other intermediary, failed to reach almost four in five of all those eligible.

It is important that energy companies carry out their duty to consumers in line with their licence obligations and as the regulator, Ofgem should ensure that suppliers are adhering to this. This is particularly important when dealing with consumers in vulnerable situations. Please refer to National Energy Action’s response for more detail around consumers who are vulnerable and/or in fuel poverty.

  1. Has Ofgem got its priorities right in addressing customer protection?

A key way in which Ofgem can protect consumers is by promoting the long-term solutions that will help to permanently bring down energy bills, such as energy efficiency and energy flexibility. To this end, Ofgem could do more to facilitate the roll-out of low carbon technologies which are key to protect consumers from high prices driven by volatile fossil fuel markets both through its regulation of the retail energy market and though network price controls.

  1. How effective is the Government's approach towards supporting the sector and delivering a functioning energy market?

The Government’s proposals for energy market reform will be essential in order to support the sector, deliver a functioning market for consumers and decarbonise the UK’s electricity system by 2035. It is important that these reforms are carried out at the pace and scale needed, particularly the Review of Electricity Market Arrangements (REMA), which should result in arrangements that enable consumers to benefit more from cheaper running costs for heat pumps and EVs from lower cost renewable generation.

Another important aspect of these reforms that the Government must follow through with its commitment to work with consumer groups and industry on a new approach to consumer protection for April 2024, such as a social tariff.[20] Any targeted support will require more time to introduce and therefore the Government needs to accelerate action on this now to help support vulnerable consumers ahead of winter.

The Government must also prioritise accelerating the delivery of the Boiler Upgrade Scheme as replacing gas boilers with electric heat pumps is one of the most effective ways to reduce gas use. According to Nesta,[21] not only do heat pumps save more than 70% on gas use compared to a gas boiler (which will increase as the electricity grid moves further towards renewable energy), a heat pump reduces wholesale gas costs by over £1,000 per year, if gas remains at current gas prices.

It will be important to make swift progress on all these reforms so that consumers can benefit sooner from a low cost, low carbon energy system.

  1. Is the legislative framework on pricing controls suitable for protecting consumers?

The price cap was designed to protect consumers from excessive prices set by their energy supplier. The price cap is still effective in this respect, but the bigger issue is that many consumers are struggling to afford the current level of cost of energy. As discussed above, social tariffs offer the potential to deliver better protection from the cost of energy, but consumers will also continue to require protection from unfair pricing.

For energy networks, Energy Saving Trust agrees that the legislative framework on pricing controls is suitable for protecting consumers. But there is more that can be done in the way that these are delivered in a fairer and greener way. Firstly, network price controls need to enable investment in upgrading the networks faster than at present, and secondly there needs to be an increased focus on facilitating progress towards net zero (eg through the deployment of low carbon technologies and increased flexibility), as this will help shield consumers from high costs in the long-term. Ensuring Ofgem has an explicit Net Zero duty will help provide a stronger steer in both these areas.

Abigail Ward on behalf of Energy Saving Trust, 24 August 2023. 

August 2023

 


[1] https://eciu.net/media/press-releases/2023/offshore-wind-treasury-red-tape-could-cost-uk-bill-payers-1-5-billion-per-year

[2] https://www.nationalgrideso.com/document/273021/download

[3] https://www.theguardian.com/business/2023/may/08/uk-green-energy-projects-in-limbo-as-grid-struggles-to-keep-pace

[4] https://www.drax.com/uk/press_release/powering-britain-in-2022-renewables-reach-record-levels-but-fossil-fuels-double-power-prices/

[5] https://www.theguardian.com/environment/2023/aug/11/uk-renewable-energy-investment-lagging-behind-rest-world-data

[6] https://eandt.theiet.org/content/articles/2023/02/delays-threaten-net-zero-goals/

[7] https://eciu.net/analysis/reports/2022/paying-back

[8] https://archy.deberker.com/the-uk-is-wasting-a-lot-of-wind-power/

[9] https://www.cornwall-insight.com/wp-content/uploads/2023/08/The-power-of-flex-Rewarding-smarter-energy-usage-1.pdf?utm_source=website&utm_medium=website

[10] The-power-of-flex-Rewarding-smarter-energy-usage-1.pdf (cornwall-insight.com)

[11] eeig_the-energy-efficiency-investment-imperative-02_22.pdf (theeeig.co.uk)

[12] Energy & Climate Intelligence Unit | Insulation installed over last… (eciu.net)

[13] Household Energy Efficiency Statistical Release (publishing.service.gov.uk)

[14] https://eciu.net/analysis/briefings/heating/insulation-and-gas-prices

[15] https://www.theccc.org.uk/publication/climate-policy-that-cuts-costs-international-policy-comparison-energy-saving-trust-green-alliance/

[16] EST-Supporting-Scotlands-Green-Ambitions.pdf (energysavingtrust.org.uk)

[17] https://www.theccc.org.uk/publication/climate-policy-that-cuts-costs-international-policy-comparison-energy-saving-trust-green-alliance/

[18] https://www.warmthiswinter.org.uk/news/estimated-5-5-million-uk-adults-are-now-in-energy-bills-debt

[19] https://www.ageuk.org.uk/latest-press/articles/2023/4-in-5-of-all-those-eligible-for-the-energy-bills-support-scheme-alternative-fund-missing-out/

[20] https://www.gov.uk/government/topical-events/autumn-statement-2022; https://www.gov.uk/government/publications/powering-up-britain/powering-up-britain-energy-security-plan

[21] https://www.nesta.org.uk/report/how-the-energy-crisis-affects-the-case-for-heat-pumps/how-heat-pumps-can-help-tackle-the-energy-crisis/