Government faces growing pressure for radical action to support fuel-poor households in first major test of net zero resolve post-COP26

As the New Year begins, a tough winter still lies ahead for struggling householders, and the nation’s energy crisis woes appear far from resolution, prompting crucial questions for net zero policy in 2022.

On the one hand, the Christmas holidays marked a particularly green period for Britain’s power grid, with electricity from fossil fuels falling to an all-time low, taking a mere six per cent share of overall generation on 29 December, according to analysis commissioned by energy company Drax.

Overall, coal and gas together generated just 1.7GW of electricity that day, with renewables such as wind, solar, hydro and biomass sources shouldering the overwhelming majority of demand at 24GW, or around 65 per cent of the country’s entire electricity needs, the data shows.

Onshore and offshore wind combined made up over 15GW – 55 per cent – of Britain’s electricity needs on 29 December, with biomass providing 2.3GW (8 per cent) and hydro providing 300MW or just over one per cent of the total, although solar generated no power that day.

The analysis, carried out on behalf of Drax by Imperial College London, estimated that the record low output from fossil fuels helped slash the carbon intensity of the power system during the seven days between Christmas Eve and New Year’s Eve, which averaged a record low of around 125g/KWh over the period. It means our Christmas dinners were likely roasted using the greenest ever electricity in the UK.

Yet this nugget of progress perhaps masks far greater challenges within the energy sector. Firstly, the festive period capped a year which saw the grid’s CO2 intensity actually increase for the first time in eight years, thanks to low wind speeds, higher gas power output, and increased household and industrial demand for energy in the wake of the pandemic.

According to separate analysis by Carbon Brief late last month, emissions from power generation in the UK rebounded following historic lows in 2020 after the Covid-19 crisis first struck, with gas and coal-fired output both increasing in 2021, while wind and nuclear output in fact fell. While the carbon intensity of Britain’s electricity mix has fell significantly from 529g/KWh in 2013 down to 181g in 2020, last year saw a slight uptick to 187g, the analysis shows.

Such data underscores the huge journey still left ahead if the UK energy sector is to deliver on the government’s ambition for a net zero electricity grid by 2035. Moreover, while temperatures were unseasonably mild across much of the UK, households are still facing a huge hike in energy bills, thanks in large part to the ongoing global gas crisis that is set to bite harder as temperatures cool in the coming weeks and months.

The situation has already seen average UK gas and electricity bills rise 28 per cent and 19 per cent respectively over first ten months of 2021, driving a number of suppliers into bankruptcy and further compounding other rising living costs in the wake of Brexit and the pandemic. And, with the energy price cap set to rise in April, dual-fuel householders are looking at a further steep rise in bills, potentially by around £700 a year.

As a result, various charities and consumer groups have sounded alarm bells at the impact on those unable to afford the steep rise in costs during the cold winter months, forcing fuel-poor households to choose between cooking hot dinners and staying warm, or indeed forcing them from their homes altogether. Charity National Energy Action (NEA) warned over the weekend that the rising energy costs could push at least another two million UK households into fuel poverty compared to the start of last year. That would take the total number of UK homes in fuel poverty to a record six million, the highest level across the UK since records began in 1996, the charity warned.

Similar warnings have been sounded by numerous others, including Money Saving Expert founder Martin Lewis, who yesterday urged the government to intervene to help householders weather the living costs storm. “This year is going to be a very tough year for many people,” he told PA Media. “The energy price crisis needs substantial intervention from the government. “We are going to see a minimum 50 per cent increase in energy prices in the system and that is unsustainable for many.”

Pressure for action is growing, and the implications for the UK’s broader net zero agenda in 2022 could be significant.

For its part, the government has continued to insist the energy crisis underscores the need to further accelerate the push towards cheap, clean power in order to reduce reliance on foreign imports of gas and the volatility of international fossil fuel markets

Last month the regulator Ofgem also launched a consultation over potential reforms to the price cap methodology in a bid to help ensure the policy measure “is better able to handle energy market volatility”.

“We need a regime that can enable a sustainable market, to promote our transition to net zero,” said Ofgem chief executive Jonathan Brearley last month. “The months ahead will be difficult for many, and we are working with the government and energy companies to mitigate the impact as much as we can, particularly for the most vulnerable households.”

But such moves have done little to dispel the belief among a small fraction of backbench Conservative MPs that the government’s environmental policies and net zero agenda are somehow to blame for rising energy costs, and that the crisis requires the UK to expand domestic oil and gas exploration, rather than renewables, hydrogen and electrification.

An open letter from a group of around 20 such MPs, including Esther McVey and Steve Baker published in the Sunday Telegraph this weekend, reiterated these very arguments, and urged the Prime Minister to scrap VAT on domestic energy, and also to remove domestic environmental levies on energy bills, such as the Climate Change Levy.

So the ‘net zero scrutiny’ group of climate-sceptic Tory MPs has finally revealed names and numbers in today’s Sunday Telegraph.

The most interesting thing tho is not their line of argument (“more fossil fuels!”) but just how small the group is – only 20 (usual suspect) people

— Leo Hickman (@LeoHickman) January 2, 2022

Many fiercely disagree, however, including director of the Conservative Environment Network Sam Hall. As he pointed out yesterday, if the UK had gone faster and further on expanding renewables capacity and better insulating homes over the past decade, then “demand for gas for heat and power would now be lower and we’d be less exposed to this price rise”.

It’s odd to blame the energy bill rise on net zero when we know it’s due to global gas prices surging. In fact if we’d gone faster on renewables & insulation over the past decade, our demand for gas for heat & power would now be lower and we’d be less exposed to this price rise.

— Sam Hall (@samuelhall0) January 3, 2022

Energy UK CEO Emma Pinchbeck also pushed back against the MPs’ letter this week, reiterating the trade body’s position that “we should be reducing our dependence on gas by pursuing net zero”.

“For levies, green policies help the energy transition that will save bills and power the future economy,” Pinchbeck said this week. “You won’t hear the energy sector/economists say we should scrap/pause green policies.”

She added: “Ultimately this crisis also shows the wisdom of building cheaper, greener, resilient energy transition in the UK. We need imaginative and rapid policy change, so we can transform our infrastructure and offer new services and technology to customers – as well as support for now.”

Indeed, many figures from across politics and business have been calling for more radical action from the government to tackle the rising cost of energy bills. But rather than ditching green levies or pushing for an expansion of domestic fossil fuels, most have been calling to accelerate support for renewables.

Energy firms have – like the 20 or so Conservative backbench MPs – also called for the government to scrap VAT on energy bills in order to ease the burden on householders. But energy sector figures, who are set to resume talks with Business Secretary Kwai Kwarteng tomorrow over the ongoing crisis, have also reportedly recommended a number of fresh proposals to ease the energy bill squeeze. These include establishing a new subsidy scheme to support renewable energy generation, as well as a £20bn fund to allow suppliers to spread the costs of recent wholesale energy prices over a number of years, according to the Financial Times.

It follows reports over the Christmas period suggesting the government’s may be looking at several measures to try and address the crisis, including a potential windfall tax on oil and gas companies – which have enjoyed significant revenues from high gas prices – with revenues used to support vulnerable householders. Other reports in The Times have also suggested the government may be considering plans to lend energy companies billions of pounds to shield households from bill increases, and that Ofgem is exploring the potential of delaying charging customers for the costs of the myriad suppliers that have gone bust in recent months.

All in all, the government – which insists protecting consumers remains a “top priority” faces a major set of dilemmas as it begins 2022 knee-deep in a cost of living and energy crisis, just as it seeks to shape its energy policy to ensure it is fit for a net zero future.

Just days before Christmas, BEIS launched a call for evidence on the future of the energy retail market, with a focus on how firms in the sector “can help drive the drive investment needed to achieve net zero” while keeping costs down for consumers, and how market competition can help send the right price signals to accelerate the uptake of low carbon products and services.

“This vision remains the right one,” BEIS said. “However, we also need to take account of the lessons from recent months to ensure that the energy retail market is resilient, sustainable, and continues to protect consumers as we move to a net zero energy system.”

The call for evidence is set to close in less than two weeks, and amid growing pressure from all sides for radical action to tackle the energy crisis ahead of the expected price cap rise in April, decisions are expected soon which could well shape the future trajectory of UK energy sector decarbonisation for years to come. Just weeks after helping broker the landmark Glasgow Climate Pact, the government is now facing the first major test of its climate resolve post-COP26.

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