The answer to rising energy bills? Pay people to use less

This post is by Dustin Benton, senior policy adviser at Green Alliance 

“I’m sure I’ll take you with pleasure!” the Queen said. “Two pence a week, and jam every other day.”
Alice couldn’t help laughing, as she said, “I don’t want you to hire ME – and I don’t care for jam.”
“It’s very good jam,” said the Queen.
“Well, I don’t want any TO-DAY, at any rate.”
“You couldn’t have it if you DID want it,” the Queen said. “The rule is, jam to-morrow and jam yesterday – but never jam to-day.”
“It MUST come sometimes to “jam to-day,”” Alice objected.
“No, it can’t,” said the Queen. “It’s jam every OTHER day: to-day isn’t any OTHER day, you know.”
“I don’t understand you,” said Alice. “It’s dreadfully confusing!”

From the perspective of an ordinary consumer, the debate over future energy bills looks a lot like this exchange from Alice in Wonderland. Everyone is talking about how to bring prices down, but it’s all ‘jam tomorrow’ (or, in the case of the first dash for gas, which brought our bills down in the 90s, ‘jam yesterday’). Real energy prices have roughly doubled since 2004, with a 17% rise over the past 12 months alone – driven in large measure by the rising wholesale price of gas.

Bringing costs down
The arguments about reducing the price of energy in the future all depend on new construction, which will take years: some think building more nuclear power stations will make energy cheaper; others think Liquified Natural Gas terminals will provide cheap gas; many environmentalists think that wind will provide cheap power (and indeed, onshore wind is already cheaper than conventional generation in Brazil).

There’s every reason to believe that renewables (and carbon capture and storage) could be as cheap as – or even cheaper – than other low-carbon technologies. Consulting engineers Mott Macdonald, in a May 2011 assessment of future costs for government, have said as much. But this is a long-term argument – ‘jam tomorrow’ – and prices are high now.

What about ‘jam today’? The short-term solution put forward by Government is to switch energy suppliers – to use competition to cut costs. But this has a limit – we now buy a large and growing percentage of our energy from abroad, and our per-unit energy prices are already below many of our European neighbours.

Get paid for the energy you don’t use
The truth is, energy efficiency is the only way to cut bills in the short run. Energy efficiency works. As Nick Molho pointed out recently, Swedish energy prices are some 50% higher per unit than in the UK, but energy bills in Sweden are around 30% lower. Why? Swedish homes are very energy efficient.

Unfortunately, there are well documented barriers to energy saving, including uncertainty about future electricity prices. So here’s a counterintuitive idea: pay people to use less energy. This is the idea at the heart of Green Alliance’s proposal for an electricity efficiency feed-in tariff.

A market for efficiency
Creating competition between companies that produce energy and companies that can save energy could dramatically reduce the cost of energy – in the US, paying companies or organisations to help people save energy is 3.5 times cheaper than paying for new power stations. And cutting electricity use is important because it’s about 3 times more expensive per unit than gas (which provides most of our heating).

Even better, we can save money in less time than it takes to build a power station. Energy saving companies could cut bills in the short-term by offering consumers incentives to replace old, inefficient appliances or, alternatively, give tailored advice on how to cut energy use without the pressure of a sales-pitch for the newest energy saving gizmo. The key is to create a market incentive for energy saving, and let competitive pressure drive innovative companies to find the best way to help people cut their energy use.

One comment

  • Can we rely on free market competition to drive down pricing? I’d say not, based on the way energy producers are herding together. Government insistence on simplified tariffs reads like a deckchair organising exercise as the iceberg looms. Perhaps a selective boycott is the answer, in the same way that consumer power has been used (or attempted) with supermarkets in the past? One thing is certain: things can’t continue heading in the same direction and at the same rate without increasing hardship among those who are lready struggling.

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