For the past few weeks, 22 million people across England, Scotland and Wales have had an unpleasant shock lurking in their inboxes and on their doormats, as their energy suppliers have laid out their future energy costs. For a home with typical energy consumption, under a聽regulated price cap.
The unprecedented increase was triggered by an energy crisis that started well before Russia鈥檚 invasion of Ukraine, although this聽has pushed prices even higher. When the price cap moves again in October, analysts expect annual bills will hit anywhere between 拢2500 and up to 拢3000.
Emergency action will be needed to help the millions of people who are least able to pay. But for those with capital and cheap credit, a world with such high prices rewrites the financial calculations for the green home renovations that are .
Advertisement
Energy experts say聽the attractiveness of measures such as installing insulation, solar聽panels and heat pumps has聽fundamentally changed. 鈥淚t聽has to massively change the calculus,鈥� says , director of the UK Energy Research Centre.
Solar panels are one technology back in the sun, after due to subsidy cuts six years ago. Solar power also got a boost in the spring statement on 23聽March, which UK chancellor Rishi Sunak used to impose a 5-year-long cut in聽VAT on solar panels and energy efficiency products, from 5聽per cent to 0聽per cent. That should cut聽solar installation costs by 拢1000, said Sunak.
at the website CarbonBrief calculates that the聽electricity bill savings of a 3-kilowatt peak solar photovoltaic system would currently pay back the upfront cost in 18聽years. From April, that figure should drop to 11聽years. By October, it should have dropped even further, to 7聽years. The payback period will vary depending on homes and the solar聽panel system. Savings will also rise the more the household consumes rather than exports the solar electricity (Evans assumes 45聽per cent self-consumption).
Self-consumption also makes more financial sense given that there is a growing gap between the聽amount people pay energy suppliers for electricity and what those suppliers pay households for exporting solar electricity. The cost of a unit of electricity is now capped at 21p per kilowatt hour, set to increase to 28p/kWh in April, and it may reach as much as 45p/kWh in October. But the amount that energy supplier Octopus Energy is paying for solar exports increased at the end of January to just 7.5p/kWh, up on the : a level that had stayed the same since 2019, when electricity prices were much lower. Still, Octopus is paying more than other energy suppliers: the joint second highest, E.ON and ScottishPower, pay 5.5p/kWh.
at the Regulatory Assistance Project says that the financial case is now clear-cut for聽solar panels, plus cavity wall insulation and loft insulation. 鈥淟oft and cavity insulation were already cost effective well before the current situation and going forward will be even more effective,鈥� he says. Solid wall insulation of the kind required for older properties is more marginal from a cost perspective. It will typically cost 拢10,000 with energy bill savings of around 拢400 a year聽for a home on a gas boiler, according to modelling by at the UK Green Building Council (UKGBC). Nonetheless, now is a good time to consider solid wall insulation, he says, 鈥渋n聽the context of net zero and getting off Russian gas鈥�.
Most home heating is provided by gas boilers today. As Marcus Shepheard at the UK鈥檚 Climate Change Committee wrote recently: 鈥淲e cannot reach Net Zero if we continue to use gas for heat.鈥� For most homes using a gas聽boiler, the main low-carbon alternative is an air-source heat pump, which uses electricity to extract warmth from the air.
To date, these have been financially unattractive. An installation can cost 拢10,000 compared with 拢2500 for a gas boiler, and running costs are higher because most 鈥済reen levies鈥澛犫�� designed to support investment in聽renewables聽鈥� are paid through electricity bills, not gas bills.
However, from April, Rosenow says they will be cheaper to run for聽the first time. That is because gas prices are increasing by 81聽per cent in April versus 36聽per cent for聽electricity, much of which also聽comes from renewables and nuclear. Octopus Energy, which hopes to become a major supplier of heat pumps, says a heat pump replacing a gas boiler would lower聽an annual energy bill by 拢8聽from April. While that saving is聽marginal, Evans calculates the saving will be about 拢240 a year from October.
Crucially, April also sees the launch of the government鈥檚 Boiler Upgrade Scheme, giving 30,000 homes a year a 拢5000 grant towards a heat pump. Octopus Energy claims it can match the cost of a gas boiler installation when the grant is factored in. at the UKGBC says the cost of heat pumps will fall too, as production and installs ramp up. Gas will also get more expensive and electricity cheaper, because the UK government has promised to shift the green levies onto gas bills over the next decade.
Of course, payback periods for different technologies will depend on how many years energy prices stay at current highs. Before Russia鈥檚 invasion, analysts had expected wholesale energy prices to fall later this year, but that has been undone. High costs are now聽anticipated to continue well聽into 2023, but there is a huge uncertainty looking further out.
Few in society want such prices to persist. Nonetheless, Simon Cran-McGreehin at the Energy and聽Climate Intelligence Unit think tank believes 鈥渁ll bets are off鈥� because geopolitics could be messy for years. 鈥淚 think there鈥檚 a need to start thinking about this in terms of an insurance policy,鈥� he says of green home measures.
However, while the financial calculations for those measures may have changed dramatically, it doesn鈥檛 necessarily mean a wave聽of home energy retrofits will sweep the UK. Gross says all the 鈥渘on-price barriers鈥� remain, including lack of information, lack聽of access to capital, disruption and fear of builders. 鈥淭his kind of聽idea that because the relative economics of聽something have changed, it will just kind of magically happen: all the research evidence tells us that that鈥檚 not true.鈥�
An absence of good advice is a big issue, says Rosenow. 鈥淎 lot of what is online is out of date and based on old prices,鈥� he says. The , which is intended to be the main impartial source of information for consumers, is still using existing energy prices even though the April price cap was announced in聽February. It says it is working to聽update its figures in line with post-April energy costs.
Overcoming hurdles is where the government has a role to play, says Gross. That could involve helping with upfront capital costs or loans. Previous government schemes 鈥� notably the 2012 to 2015聽Green Deal and 2020 to 2021 Green聽Homes Grant 鈥� have been and . 鈥淏ut that doesn鈥檛 mean that we have to do it badly,鈥� says Gross.
Government support will also聽be important for the training and certification of installers, to聽assuage consumer fears of 鈥渃owboys鈥�, he adds. Another lever the government could pull is to make stamp duty when buying a聽property ramp up or down based聽on the home鈥檚 energy performance, says Adams.
In the meantime, the terrible humanitarian situation in Ukraine could prove a more powerful spur for households than financial and environmental concerns. People have already taken to social media to post about how they have turned down their boiler flow temperatures and thermostats. Bigger steps, such as energy retrofits of the whole house, could聽be next. Rosenow says: 鈥淭here鈥檚 the emotional driver, where people feel, 鈥業 really don鈥檛聽want to use gas any more: I聽want to聽reduce that for moral reasons, to support Ukraine鈥�.鈥�
