Fuel Poverty: are we just ‘rearranging the deckchairs’?

There has been a lot of news recently about the rising price of energy and how best to drive a better deal for the beleaguered consumer. Expectations are that the government will give more detail in the autumn statement tomorrow about their plans to remove the ‘tax burden’ of certain energy levies from people’s bills and instead include them in general taxation measures (namely, the Winter Fuel discounts and Green energy levies). And of course, Labour promised at their party conference that they would enforce a price freeze upon the big energy companies.

Yet neither approach really addresses the fundamental issue of the long term affordability of energy in the UK, and how it disproportionately affects the poorest in society; 50% of all those experiencing fuel poverty come from the lowest income bracket.

Over the last 10 years domestic energy prices have doubled and the outlook for future years points to more of the same, with the National Audit Office recently predicting that energy prices are set to rise for the next 17 years to 2030.

So can the quick fixes coming out of Westminster really work?

Even with the 3-4% saving from removing the energy levies (about £50 off the average annual bill), bills will still go up by around 5% this year because of the price rises announced by the big six energy companies.  Indeed, many highlight that the government’s plans will end up delaying the target date for insulating the homes of the elderly and vulnerable by two years.

But enforcing a price freeze will do little to incentivise the investment needed to build new supply, which will be critical in meeting long term demand. With energy heading towards the proverbial icebergs (the formation of which were probably caused by carbon burning in the first place), the political captains are busy arranging the deck chairs into a voter-appealing formation.

We take a keen interest in this subject, as one of the aims of our impact investment fund, is to help individuals and communities achieve greater efficiency in their use of energy.  So what do we think needs to happen?

Although this is a highly politicised field where there’s no silver bullet, there are some actions and areas for innovation that could help people in fuel poverty:

  • NII_Logo_COLOUR_CMYKGetting people off pre-payment tariffs and onto monthly direct debits will instantly save them 5-6%.
  • Using smart meters, and sensors in the home like those from Alertme could save between 5% and 15% on electricity use.
  • Engaging consumers in collective buying (sharing price benefits by aggregating demand) has had mixed results, due partly to consumer apathy and a lack of choice, but in certain instances 10-15% savings have been achieved.
  • Localised energy companies (often renewable energy) are starting to get a foothold and provide financial participation for local residents, for example Abundance’s crowdfunding platform.
  • Encouraging and funding new technologies will enable domestic renewables to take hold without needing such huge subsidies.

We are starting to see specialised energy supply companies that are not run for profit maximisation, but rather for long financial sustainability. By targeting a particular demographic they subsequently have smaller back office and marketing costs than the large energy companies.

These are just a few of interesting innovations we starting to see. We believe the sector is ripe for innovation and disruption, and particularly around how we as individuals and communities source, use, engage (and even ‘own’) our energy supplies. There is still time to avoid the icebergs!

Alex Hook – Nesta Impact Investments

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