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A blog by Consumer Scotland Chief Executive Sam Ghibaldan

There is no escaping the reality that some energy consumers are facing hardship this winter. Many of these will be in Scotland, where energy costs are typically a higher proportion of household expenditure than in other parts of Great Britain.

The increase in the average household’s gas and electricity bill to £3,549 [1] per year on 1st October is therefore going to be even more keenly felt in Scotland, significantly increasing the proportion of households living in fuel poverty. Alongside gas and electricity customers, the 217,000  households in Scotland reliant on unregulated fuels for heating - oil, LPG, communal heating, solid fuels and biomass [2] - are also experiencing price increases.  The actual increases experienced depends on the fuel type, but in the case of liquid fuels the price has nearly tripled in the last two years, [3] affecting the 129,000 households that use oil for heating. 

It’s clear that many consumers need targeted and proportionate financial support to get through this crisis. That has to be the number one priority. A number of remedial schemes have been proposed, including freezing the price cap to the April 2022 figure of £1,971. Spiralling energy costs are fuelling record-breaking profits for oil and gas companies, and earlier this year led to the UK Government imposing a windfall tax. One idea is to increase the extent of that windfall tax to enhance financial support for consumers. Another would see energy retail companies being loaned money, paying that back through increases in customers’ bills over the next ten to fifteen years. That would offer the companies security against the risk of bad debt, and electricity and gas consumers some short-term financial relief, but would load the burden onto future bill-payers.

The UK Government must decide how to proceed, but the consumer imperative for action is clear. High energy bills are placing many households and small businesses in desperate straits, as well as fuelling wider inflation, pushing the cost of living even higher. 

Even prior to the April 2022 price-cap increase, YouGov research found that 31% of households in Scotland could not heat their homes to a comfortable level due to financial concerns. Consumer Scotland will be engaging consumers to refresh that research regularly over the next few months.[4]

Consumers experiencing financial hardship need immediate advice and support. Recognising that there are a plethora of bodies – energy companies, advice organisations and public bodies – that collectively have the ability to identify people at the greatest risk, and the resources to help them, the First Minister held an energy summit last week to begin co-ordinating a response. That work is urgent and ongoing.

But while the immediate consequences for consumers of extraordinarily high energy prices must be the top priority, we should not lose sight of the fact they are the symptoms of deeper problems: problems of high energy demand, short-term thinking and failing energy markets.

We use more energy than we should and that is contributing to high bills. Inadequate insulation is at the heart of our energy demand problem, leading to fuel poverty, poor health and unnecessary carbon emissions. The average UK home still has an Energy Performance Certificate rating of Band D, and will pay 15% more (around £598) in energy bills this winter than a typical Band C home [5]. For a Band E home this will be 34% more (around £1,309) than a Band C one [6]. 

In 2013 the response to high energy prices was to reduce the levies that funded insulation programmes. Following this the number of households insulating their lofts in 2013 fell by 92%, and cavity walls by 74%.[7] Those rates haven’t recovered since, and in January this year Carbon Brief’s analysis suggested it has led to energy costs being £2.5 billion higher than they could have been.[8] Due to the rise in energy costs, this is now estimated as £9.5 billion under the October price cap, and is expected to reach £13 billion based on January price cap predictions[9].

The lesson for the current energy crisis is clear: failing to insulate increases consumer detriment in the short, medium and long-term. The more homes we insulate, the lower energy demand and bills will be. It is for good reason that energy efficiency has been a National Infrastructure Priority in Scotland since 2015.

Householders cannot solve the energy crisis by themselves, but there are some relatively simple and inexpensive steps people can take to limit their energy costs. These include optimising combi-boiler flow temperatures and hot water pre-heating, which some estimates suggest could save a typical household more than £300 per year[10].

Reputable energy-saving advice for consumers from bodies like Home Energy Scotland is already available. But the scale of the current crisis requires an equivalent response, with an information campaign able to provide the public with authoritative, practical guidance.

If the paucity of energy efficient buildings is one reason why the current crisis is more severe than it need be, another is the way energy prices are determined. Perhaps inevitably, it has taken a cost crisis for questions to be asked about how the energy market works. It is complex,  rooted in fossil fuels and historical patterns of supply and demand. That market is now failing to protect consumers. It must be transformed to be resilient for the circumstances of the 21st century, serving consumers by providing affordable energy and facilitating a just transition to Net Zero.

High energy costs look set to continue well beyond the coming winter. Consumers must have financial support to alleviate the impact of high energy bills. But the causes of consumers’ distress, as well as the symptoms, need to be treated with long term solutions. A strategic approach would include a focus on energy demand reduction and energy market reform, increasing progress to Net Zero objectives, further benefiting consumers.

Footnotes

1. Ofgem

2. Scottish House Condition Survey: 2019 Key Findings – Table 5

3. Consumer Price Inflation Tables – Release date 17 August 2022 – Table 7, July 2022 data compared to July 2020

4. Figure from YouGov Plc. Total sample size was 2012 adults. Fieldwork was undertaken between 23rd and 31st March 2022. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

5. ECIU

6. Analysis based on figures from Cornwall Insight which estimated that average bills would increase to £3,582 in October 2022 and £4,266 in January 2023.

7. Carbon Brief

8. Carbon Brief

9. Carbon Brief

10. Carbon Brief