The UK Government has promised consumers more affordable electricity. Ofgem has now launched a consultation on affordability. And if the result isn’t a drastic improvement, it could cost much more than you think.
It seems like barely a day goes by without headlines relating to Britain’s beleaguered energy system and the urgent need for change. Whether that’s switching to renewables or bringing down prices for domestic and business addresses, reform is the operative word.
Last week the industry regulator Ofgem launched a major review into how costs are allocated across the energy system. This includes a public consultation on alternative pricing models for consumers, which may or may not make things fairer.
‘As we transition to a more secure, homegrown, renewables-based energy system, unit costs may decrease due to reduced reliance on expensive and volatile gas,’ says Ofgem CEO, Jonathan Brearley, of the Cost Allocation and Recovery Review [CAR].
‘However, fixed costs – such as those needed to upgrade the energy network to deliver cleaner and more secure power to our homes – could rise,’ he continues. ‘This shift in the make-up of system costs means we need to review how we pay for energy and carefully consider how these costs are distributed.’
The assessment was announced just weeks after Labour made a series of promises to the electorate about impending energy reforms. This involves ‘doubling-down’ in the net zero mission, and giving users more choice in terms of where energy is coming from through further development of community-owned and localised infrastructure.
Pricing is another priority, with Ofgem’s consultation set to play a big part in directing the reform. One thing seems certain, zonal pricing will not be introduced — dubbed by some as ‘postcode costing’ — after proposals were taken off the table by government mid-July.
We’ve been here before, a number of times. A consultation on pricing zones technically began back in 2002. A time when, comparatively speaking, the cost of energy — along with many other essentials — was far lower than it is today. And, as a result, the stakes could not be higher than they currently are.
According to a USwitch survey, 76% of UK energy customers now consider lower pricing as the second most important aspect of any attempts to reform the national network. Only accurate billing, which is essentially part of the same issue, ranked higher.
The organisation’s CEO, Angus McCarey, has issued a stark warning that unless the net zero and clean energy transition is repositioned to put affordability front and centre, the UK’s clean grid target of 2030 is at risk. This is partly due to the ‘perception’ that renewables are more expensive.
This is partly a misnomer — the energy itself is cheaper, but the infrastructure and technology often has a significant set-up cost. Meanwhile, grants and financial support is inconsistent, while subsidies for oil and gas continue to paint a false picture about the true price.
‘Consumers are not resisting the energy transition,’ says McCarey. ‘They are simply waiting for it to make sense – financially, practically and personally. Affordability is not a secondary issue, it is the issue.
‘Without a credible, consumer-first strategy that ensures households see direct, affordable benefits, the UK risks falling short of one of its most important climate milestones,’ he continues. ‘Without structural reforms to how energy is priced, ensuring clean power is the cheapest and simplest choice, we risk leaving millions behind in this transition.’
The coat of failure could be far more than any of us are really willing to pay. Albeit this will be borne out over decades, rather than quarters of a year. Just this week, BP announced the largest oil and gas reserve discovered in the past 25 years of exploration in Brazil.
A cause for celebration across fossil fuel and investment sectors, headlines emphasise how determined many companies are to continue extracting energy sources from the ground with little thought of consequences.
Unsurprisingly, support is evident in the US, where President Donald Trump’s Department of Energy has just released a report into climate change and the environment at odds with the mainstream scientific consensus including the Intergovernmental Panel on Climate Change.
Released in the past week, the assessment forms part of a wider push to green light discontinuing Washington’s efforts at tracing greenhouse gas output. According to those behind the review, the risks of rising temperatures have been grossly overstated, while the benefits — such as high agricultural yields — have been downplayed. Taking steps to stop pumping out carbon dioxide could actually do more harm than good.
It’s the latest in a long list of assaults on climate science perpetrated by the current Republican government since taking power in January this year. Other examples include withdrawing from the Paris Agreement and shutting down key satellites which are used to monitor conditions on our planet.
This sets a dangerous precedent for the international community, and should be considered a stark warning to the UK and specifically Labour. In 2024’s presidential race, the key issue for voters was cost-of-living, not least in the ubiquitous use of eggs as a gauge for lack of affordability.
Failing to address this in any tangible way was a significant contributor to the Democratic Party’s decline — although it’s worth noting many of the factors impacting prices were global, and beyond any individual government’s control. A fact that was only fleetingly discussed on social and legacy media channels.
Worse still, though, the Democrats’ inability to regain control of the cost of living narrative led to Trump’s win. This is desire the fact he offered no real policies that would directly tackle this, and in the months after his return to the Oval Office costs continued to climb. Including, although not exclusively, eggs.
Since then, environmental policy after environmental policy has been torched in a bonfire of ignorance and immediate profiteering. Although some of this could be relatively easy to reverse — funding for the Environment Protection Agency, for example — the impact of four years reversal won’t be. And this is especially true when it comes to ripping up any and all signs of investment in renewables at a crucial moment for global transition.
The UK is currently in the midst of another summer defined by discontent, but a General Election still seems pretty far off. Nevertheless, the surge in popularity of Reform UK has not gone unnoticed by any of the traditional major parties who are right to be concerned about where the next round of votes will go.
The far-right populist party’s leader, Nigel Farage, has already made it clear that net zero would be one of the first things to go should they ever enter Downing Street (along with the Online Safety Act, or ‘porn ban’). This promise is partly being sold on the basis of making life cheaper, a connection which is only possible due to the erroneous perception that clean energy has to be more expensive.
While immigration protests and rhetoric is back on centre stage right now, the British public, its public bodies and businesses are struggling with overheads more now than they were during the peak of the energy crisis. Costs and affordability remain a crucial factor for everyone, which means if Labour miscalculates and misfires on energy price reforms it could do far more damage than many might assume. Failure in this context could mean a greater loss than the next election — it could wind up costing the Earth.
Image: Cullan Smith / Unsplash
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