Remove levies from electricity to boost renewables and cut bills
By Garry Felgate, Chief Executive, The MCS Foundation.
As momentum builds behind the case for heat pumps, Garry Felgate, Chief Executive of The MCS Foundation, emphasises that removing levies from electricity bills would not only accelerate the transition to renewables and heat pumps, but also reduce energy costs for households.
The UK’s disproportionately high electricity prices – among the highest in Europe – are holding back the transition to cleaner and cheaper energy. This is the result of policy, and it can be changed by moving levies currently placed on electricity into general taxation.
On 1st July in Parliament, The MCS Foundation will be hosting MPs, ministers, and stakeholders from the energy, net-zero and fuel poverty sectors to discuss our proposals for how to cut bills and boost heat pumps.
Here’s why this matters and how it can happen:
Social and environmental levies make up around 16 per cent of the price of electricity for consumers in Britain. This contributes to electricity costing around four times as much as gas – despite electricity now being far cleaner than gas, thanks to the increasing share of renewables in the energy mix.
Times have changed since levies on electricity were first introduced in the early 2000s to raise funds to invest in renewable energy. Back then, the vast majority of electricity was produced from fossil fuels, so it made sense to tax this dirty power and put the proceeds into developing renewables. Now, the tables have turned, with less than 40 per cent of electricity coming from fossil fuels and an ever-increasing proportion coming from wind and solar.
Reducing the cost of electricity is particularly important for the rollout of heat pumps, which half of all homes must have by 2040 if we are to meet climate goals. Electric-powered heat pumps can be four times more efficient than gas boilers – but because electricity is four times more expensive than gas, consumers are not accessing the full savings that heat pumps can offer. Research commissioned by The MCS Foundation from independent energy analysts Cornwall Insight demonstrates the savings that could be realised by removing levies from electricity. Doing so would result in £300 annual savings for an average home with electric heating, including heat pumps and direct electric heating.
The prospect of such savings would act as a powerful incentive for households to switch to heat pumps for cleaner, cheaper heating. And that switch is essential if we are to end dependence on costly and polluting fossil fuels. Home heating currently accounts for around 14 per cent of UK carbon emissions, and many energy experts agree that heat pumps are the only viable solution to decarbonise home heating at scale. The Climate Change Committee’s (CCC) pathway to net-zero states that by 2035, we’ll need to be installing 1.5 million heat pumps a year and that by 2040, half of all homes will need a heat pump. MCS data show that heat pump installations are at record levels in the UK, but we are a long way off where the CCC says we need to be. We will need to increase installations by at least 35 per cent every year for the next 10 years to meet those goals.
As the proportion of homes with a heat pump rises, so too do the societal benefits of having cheaper electricity, helping to realise the ambition of affordable heating bills that make the most of clean energy. It’s also worth noting that those most at risk of fuel poverty – such as the elderly – are more likely to rely on electric heating, so lowering electricity costs would directly benefit the most vulnerable.
There is now widespread consensus across the political spectrum and among both environmental and fuel poverty experts that levies need to be removed from electricity. Now is the time to do it.
This article was originally published in The Path To Net Zero supplement circulated alongside The House magazine. To find out more visit The Path To Net Zero hub
