International gas markets have been flashing distress signals this week about a looming shortage. But the British government’s message is the opposite: we will not run out of gas.
Not just gas, but real gas. The The government could boast that the country did not import Russian energy in June for the first time in history. Meanwhile, UK domestic gas production increased by 26 percent in the first half of the year.
What we don’t have is time. In the lost weeks of political hot air, little progress has been made on how to keep homes warm this winter. The new Prime Minister will have less than four weeks until energy bills linked to wholesale market prices jump, with the price cap based on average consumption expected to be set at close to £3,600 on Friday.
The problem, of course, has also grown significantly. The price is forecast to rise again to above £4,500 in January. Half of UK households are facing fuel poverty this winter, defined as spending more than 10 per cent of their income on energy, according to EDF. A University of York report suggests a still higher proportion, especially among large families, single parents and retired couples. It looks like a hit in households bigger than the financial crisis and more concentrated among the poorest.
Support would ideally be substantial but well-targeted, a combination that requires time to plan. Scottish Power’s £100 billion proposal to cap energy costs at £2,000 financed by government-guaranteed commercial bank loans is extremely expensive because it is so crude, as Lex explained. That defers the question of whether household bills or taxes will ultimately take the burden, but it involves paying private funding for something the public sector could do. This insulates suppliers from rising defaults, so there is broad sector support. It also gives too much help to wealthier households.
Refinement, however, runs into a problem that raises the likely alternative to more means-tested payments: defining the group of people most in need of help.
Since Scottish Power first proposed a version of its fund in April, this has grown far beyond the 7.3 million recipients of means-tested benefits. The Resolution Foundation think-tank points to the problem of the cliff edge, where a household simply does not qualify for support, as well as the need to help heavier energy users such as larger families.
His preference, a social tariff that cuts, say, 30 percent of the bill, would deal with usage. But his idea of targeting households where no one earns over £40,000 hits a database problem, essentially requiring HMRC’s systems to be linked to other parts of government. It’s not impossible, but it takes time: in general, we should have started months ago.
The same is the case elsewhere. To be fair, the Department of Energy is trying to step up elements of complex, long-term market reformsuch as the separation of domestic electricity prices and gas prices.
Government reportedly wants to transfer generation companies on old renewable energy contracts, which in effect pay wholesale gas prices for renewable energy, to cheaper 15-year fixed-price contracts. These contracts represent around 18 GW of wind power alone, or a quarter of the UK’s generating capacity. “If you have a block of cheap, low-carbon energy, you could sell it directly at a cheap fixed price to vulnerable consumers,” said Adam Bell, a policy adviser at consultancy Stonehaven and a former government energy strategist.
This year could and should have been spent improving the abysmal rate of home insulation in the UK from 200,000 a year to the 2 million the market routinely managed before 2013. That was obvious, choice without regret six months ago. Instead, the government currently relies on common sense and difficulties to win people over to reduce gas consumption by 8 percent by simply adjusting boiler settings for more efficient operation.
The scale of the problem means that there are no great options for protecting households, especially since the support required is essentially unlimited. The risks are a larger, broader, more expensive scheme than is really necessary, or an inadequate standstill that leaves many out in the cold. In any case, we also try to recover the time that was wasted.