With Labour and LibDems showing a new found enthusiasm to cut consumers’ energy bills, what’s needed is a new green tariff in the Government’s Energy Bill that does just that: a consumers’ incentive not to use electricity. A new study from the Green Alliance shows that persuading consumers to reduce their energy demand is cheaper than building new power stations or windfarms. Consumers would benefit from significantly lower energy bills. And we could avoid needing to build up to six new power stations or around 5,000 new wind turbines.
The Government’s Energy Bill, due back in Parliament in November, is all about renewing our energy supply. The Bill aims to stimulate £200bn of new investment in power stations, carbon capture, renewables and new grid by 2020. As Ed Miliband argues today, “the potential for a green industrial revolution is huge.” But there’s no matching consumer incentive to cut demand – except the rising price of electricity itself. And unfortunately, consumers don’t respond by cutting their energy bills anything like as fast as prices rise. Why?
- One reason is revealed in a US study of consumer demand in response to energy price rises. A ten per cent increase in electricity prices only decreased demand by around one per cent. On this evidence, if we relied simply on price rises to reduce demand to the level government projections require, electricity prices would need to rise to two and a half times by 2025.
- And then there’s the dotty way the UK power market incentivises increasing electricity use. Power companies earn more as they generate more. Consumers pay less per unit as their electricity use rises. There is currently no benefit to energy companies in reducing consumer demand as this reduces their sales and profits.
The answer? A new green energy tariff. There’s some technical work to be done to make sure the new incentive uses real, measured savings. Meter readings will be needed from both before and after the new green tariff. This data is already collected by energy companies, but a requirement to collect actual meter readings on a monthly or quarterly basis could improve the measurement of electricity savings.
Environmental groups are going to focus hard on the idea of a green tariff when the Energy Bill comes under parliamentary scrutiny. More effective demand reduction policies could avoid the need to spend £125 billion on low carbon power compared to business as usual. Consumers could save at least £35 billion through a well designed electricity efficiency feed-in tariff.