Radical and progressive thinking on energy prices

21st Aug 2017

 

Fuel poverty needs to be addressed, let’s start with what there is agreement on. The biggest single determinant of fuel poverty, far out-stripping energy efficiency and energy prices is low income levels. That said, is there anything progressive the energy sector could do?

Firstly, some evidence from the National Energy Efficiency Data-Framework (NEED) produced by BEIS. Both gas and electricity consumption generally increase with income, put simply the richer you are the more you consume. At a household income level of under £15,000 the median gas consumption is 9600 kWh, compared to incomes of over £150,000 using 20900 kWh.

Secondly, average consumption (TDCV from Ofgem) of gas is 12000 kWh and electricity 3100. Using BG standard variable tariffs (SVT), this gives an average household bill of around £1145 a year (including standing charges and VAT).

So a flat rate cap on energy bills of £1000 will save the average household £145 a year; for those with incomes of under £15000 it would not apply (total bill of just over £860 a year). For those on over £150,000 a year, a typical bill would be over £1730 a year, so they would save £730. Is it only me that thinks this somewhat perverse?

So what could be progressive and radical?

To begin with, progressives would look at the principle of the Standing Charge – for the dual fuel user, on the BG SVT – this is £200 a year, regardless of income level. Deeply regressive, it constitutes nearly a quarter of the bill for those earning under £15,000 a year.

Also regressive (in the strict economist definition) is the fact that the unit price is the same regardless of usage – those using the most (perhaps inefficiently) pay the same rate as those who try to keep costs down. Charging a higher price, they more you use, (and a lower one the less) is “progressive” but it also incentivises energy efficiency – allowing the market to function.

I don’t pretend that it is easy, but worth a look at? Perhaps.