The costs of decarbonising the power system have mainly been funded through consumers’ electricity bills. In 2020-21 these costs amounted to £10bn with the expectation that support for low carbon generation will continue to be necessary. If we are to maintain a trajectory to net zero carbon emissions at 2050, our attention will need to turn to decarbonising the nation’s heat. For most consumers, that will mean switching away from heating their homes with gas to an alternative low carbon source with costs incurred in replacing and upgrading equipment within the home and new infrastructure to support this transition. Policy decisions will need to be made around the scale, timing, cost and means of funding for this transition.
Cornwall Insight has published this thought paper to provide a range of options and illustrate the potential impacts of short-term reform in policy cost recovery. This specifically focuses on first moves to support significant decarbonisation of heat in domestic properties. While hydrogen remains some way off wider commercialisation, the government has targeted the installation of 600,000 heat pumps per year by 2028. Where these premises are connected to the gas grid, the decision about policy cost recovery will affect the relative economics of running technologies that utilise the two different fuel sources.
While initial attention may be focused on heating technologies deployed in new build premises and switching sources other than gas to electric, the longer-term goals will need to support consumers in making the decision to transition to low-carbon technologies. This report directly compares the fuel cost implications of three methods of reform for a representative domestic consumer.
Dan Starman, Lead Consultant, commented
In order to hit net zero, consumers must be weaned off of internal combustion engines and gas boilers. Electrified alternatives, such as electric vehicles and heat pumps, are seen as the current viable and scalable low carbon alternative to support this transition. However electricity currently sits at around four times the costs of gas per unit for households, in part due to the application of a raft of policy costs recovered from the electricity bill. This paper outlines why the government should take action to disentangle policy costs from electricity bills and support consumers in making choices aligned with the net zero transition
