UK must curb electricity costs to hit green targets, says climate body chief

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The UK government urgently needs to tackle the high cost of electricity, the interim chair of the Climate Change Committee has said, warning this is hindering the country’s ability to meet green targets. 

Piers Forster, head of the independent body that advises the government on climate change, said the UK’s rollout of renewables had been a success story, but the push for greater electrification in areas such as heating and transport was being hampered by elevated electricity prices.

“If you can reduce the price of electricity, you can then really make heat pumps and electric vehicles and electrifying industries more attractive,” Forster told the Financial Times. 

“The very best way to stimulate demand [for heat pumps] is, of course, trying to reduce the price of electricity compared to gas,” he added.

His comments come after the Labour government cut the level of planned fines for boilermakers who fail to sell enough heat pumps in line with official targets. It is also considering relaxing rules on electric vehicle sales. 

Getting households to switch from gas boilers, which heat the majority of British homes, to heat pumps and to use EVs will be crucial to ensuring the UK meets its legally-binding target of net zero carbon emissions by 2050.

But under the current energy price cap, which limits the amount that suppliers can charge customers in Britain for each unit of gas or electricity, electricity costs 24.50 pence per kilowatt-hour, while gas costs 6.24 pence per kilowatt hour. 

The UK had the highest electricity prices in 2023 of the OECD countries examined by the International Energy Agency, an intergovernmental organisation.  

Under Britain’s marginal pricing system, the wholesale electricity price is set by the most expensive form of generation needed to meet demand, which is often gas-fired power stations. 

Levies to pay for policies such as subsidies for renewable energy and support for vulnerable households with their energy bills, are added as costs to electricity bills paid by consumers.

Such levies made up about 16 per cent of electricity bills between April and June of this year, compared with 6 per cent of gas bills, according to the Energy and Climate Intelligence Unit research group.

The UK put “extra costs on the electricity bill . . . and they don’t have to be there”, said Forster. “We are not in the business of being policy prescriptive, but there are several things electricity markets and the government could choose to do to reduce the cost of electricity compared to gas prices.”

The CCC has in the past called for ministers to redistribute the levies, so that people are not in effect penalised for switching to cleaner sources of energy. 

James Dyson, senior researcher at think-tank E3G, said another option was to provide a discount on electricity bills to those people who had switched to heat pumps or other greener options. 

The previous Conservative government explored proposals — including changes that would stop “volatile gas prices” setting the price of electricity for cheaper renewables — before saying in May 2024 that it favoured retaining the marginal pricing system.

Officials argued that major changes to the wholesale market would be too complicated to deliver quickly, and that gas would inevitably play less of a role in setting the price as more renewables are rolled out.

They also noted that the bulk of new renewables are being built through state subsidy contracts, which protect consumers from excessive wholesale electricity prices, therefore mitigating the need for reform.

The Department of Energy and Net Zero said: “We are committed to ensuring bill payers reap the benefits of clean, secure, homegrown energy through our mission to make Britain a clean energy superpower.  

“We are considering the best and most efficient way to bring down the cost of electricity relative to gas.”