How time became the scarcest commodity in UK energy

International gas markets have this week been flashing distress signals about looming scarcity. But the UK government’s message is the opposite: we’re not running out of gas.

Not just gas, but the right gas. The government was able to boast that the country had imported no Russian energy in June for the first time on record. Meanwhile, UK domestic gas production has risen 26 per cent in the first half of the year.

What we don’t have is time. In the wasted weeks of political hot air, there has been little progress on how to keep homes warm this winter. The new prime minister will have less than four weeks until energy bills pegged to wholesale market prices jump, with the price cap based on average usage expected to be set at close to £3,600 on Friday.

The problem has, of course, also grown markedly. The price cap is predicted to rise again to above £4,500 in January. Half of UK households face fuel poverty this winter, defined as spending more than 10 per cent of income on energy, according to EDF. A University of York report suggested a higher proportion still, particularly among large families, single parents and pensioner couples. The hit to households looks bigger than the financial crisis and more concentrated among the poorest.

Support would ideally be substantial but well-targeted, a combination that requires planning time. The £100bn proposal from Scottish Power, to cap energy costs at £2,000 funded by government-guaranteed loans from commercial banks, is enormously costly because it is so crude, as Lex explained. It defers the question of whether household bills or taxes will ultimately take the strain, but involves paying private financing for something the public sector could do. It insulates suppliers against rising defaults, hence there is broad sector support. It also gives too much help to richer households.

Refining it, however, hits a problem that dogs the likely alternative of more means-tested payments: defining the group of people who most need help.

Since Scottish Power first suggested a version of its fund in April, this has mushroomed way beyond the 7.3mn recipients of means-tested benefits. The Resolution Foundation think-tank points out the cliff edge problem, where a household only just doesn’t qualify for support, as well as the need to help heavier energy users such as larger families.

Its preference, a social tariff that cuts say 30 per cent from bills, would tackle usage. But its idea of targeting households where no one earns over £40,000 hits a database problem, essentially requiring HMRC’s systems to connect with other bits of government. That’s not impossible but it requires time: broadly, we should have started months ago.

The same is true elsewhere. In fairness, the energy department is trying to fast-track elements of complex, long-term market reform, such as unlinking domestic power prices and gas prices.

The government reportedly wants to shift generating companies on old-style renewables obligation contracts, which in effect pay wholesale gas prices for renewable power, on to cheaper 15-year fixed price deals. These contracts account for about 18GW of wind power alone, or a quarter of UK generating capacity. “If you have a block of cheap low carbon power, you could sell that directly at a cheap fixed rate to vulnerable consumers,” said Adam Bell, a policy adviser at consultancy Stonehaven and former government energy strategist.

This year could and should have been spent improving the UK’s paltry home insulation rate from 200,000 a year back towards the 2mn the market routinely managed before 2013. That was an obvious, no-regret choice six months ago. Instead, the government is currently relying on common sense and hardship to get people to reduce gas usage by 8 per cent simply by adjusting their boiler settings to run more efficiently.

The scale of the problem means there are no great options for protecting households, especially because the support needed is essentially open-ended. The risks are a bigger, broader, more expensive scheme than really necessary, or an inadequate stop-gap that leaves many out in the cold. Either way, we are also trying to buy back time that has been squandered.

helen.thomas@ft.com
@helentbiz