An electricity efficiency feed-in tariff would cut demand and mean building fewer new power stations
Everyone wants cheap energy. The UK's North Sea oil and gas reserves, exploited systematically since the 1980s, helped give us a long run of low energy costs ? and we built our consumption patterns on this bonanza of cheap supply. But since 2004, energy imports and prices have risen sharply.
Household bills have doubled in tandem with the doubling of the cost of imported gas, which now makes up nearly 40% of our demand. As Sam Laidlaw, the chief executive of British Gas, said: "The price we pay for our gas is determined by a global marketplace, not the marginal cost of North Sea production." Our reliance on a single source of fuel for almost all our heating and half our electricity ? good for both climate and cost in the 1990s ? is looking less wise now that prices are rising.
Rising prices are supposed to make us use less, which means less cost and less carbon in the atmosphere. But the consumer pain of price rises also creates a political demand for action to cut prices, which has fed demands on George Osborne to cut "green levies" on our bills. Doing so would be counterproductive, because it will raise future bills.
It won't even have much effect on current bills. Green levies only account for around 7% of the average consumer's bill. Dropping the UK's 2020 renewables target will take around �21 off domestic consumers' bills by the time of the next election in 2015, but recent price rises from the big six energy suppliers amount to a �134 rise on average bills and reflect higher gas prices. So simply ditching our green ambitions won't mean a big cut in bills.
Second, we need to think about bills in the latter half of this decade when the UK could be even more dependent on imported fuel. No one knows which energy technologies will provide low cost, low-carbon power in the future. The government is using green levies to force the energy sector to diversify so that we have a chance of finding a low-cost pathway to a decarbonised power sector by 2030. Diversification isn't the cheapest strategy if you know what will be cheap in the future, but we don't.
There's every reason to believe that renewables (and carbon capture and storage) could be as cheap as ? or even cheaper ? than other low-carbon technologies. Consulting engineers Mott Macdonald, in a May 2011 assessment of future costs for government, have said as much. But this is a long-term argument, and prices are high now.
We may not know what will give us an affordable energy future, but we do know that saving energy makes good economic (and environmental) sense now. Unfortunately, there are well documented barriers to energy saving, including uncertainty about future electricity prices. So here's a counterintuitive idea: pay people to use less energy.
This is the idea at the heart of Green Alliance's proposal for an electricity efficiency feed-in tariff. Its premise is simple: consumers will have to pay to build new power stations to meet our demand in the future. If we can spend less to cut our demand and avoid the need to build, we can save money. The size of the prize is illustrative: even on conservative estimates, we could save �35bn on the UK's energy bill between now and 2025.
The competitive effect of paying for energy saving is also striking. There is no competition to create less generation in the current market; and none of the government's electricity market reforms mooted thus far will create a market for energy saving. By paying for energy saving, we can force power generators to compete with companies which can demonstrate real energy savings, and use private-sector innovation to cut the cost of consumer bills.
With a small amendment to the government's flagship electricity market reforms, the policy incentive could be created, and won't delay investment in new low-carbon power stations. An electricity efficiency feed-in tariff is a politically, economically, and environmentally sound answer to consumer and business concerns about price rises. Even better, it could be put into place quickly, providing real relief to consumers struggling with energy bills.
? Dustin Benton is senior policy adviser at the Green Alliance
Source: http://www.guardian.co.uk/environment/2011/oct/18/energy-bills-save-money
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