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How much would an energy revolution save consumers?

  • 21 Jan 2013, 18:00
  • Robin Webster

How much would the average family save in energy bills if the government instituted a nationwide programme to insulate the UK's draughty homes? The front page of the Times claims today that the average household could knock £310 a year off its energy spend. A closer look indicates that it's getting the numbers confused.

The Times is reporting on a letter written by an "unprecedented" alliance of more than a hundred energy companies, charities and businesses to David Cameron about the need for the government to do more to tackle fuel poverty. The group, brought together under the campaign umbrella of Energy Revolution, are calling for the government to institute a nationwide programme to fit the UK's homes with insulation and prevent consumers having to pay for energy that is then wasted.

A saving of £310?

According to the Times article, the group argues that "stagnating wages and soaring bills" could mean as many as 9 million homes could be affected by fuel poverty - that is when a household has to spend more than ten per cent or more of its income on fuel to heat the home - by 2016. The only way to tackle the problem properly is to embark on a nationwide programme to fit insulation to the UK's draft homes - a move, the Times says that "would save the average families £310 a year on energy bills".

Is this right? The £310 figure is sourced to research launched by the energy bill revolution campaign in February of last year. Undertaken by the consultancy Camco (now Verco), the report models what could happen if the government used revenue from carbon taxes to subsidise home insulation.

In the first of three scenarios modelled in the report, all of the available carbon tax revenue is committed to grants to insulate homes for households in fuel poverty. The report finds:

"Across all fuel poor households, the savings in energy bills would be on average about £310 per year between now and 2027"

The projected savings for fuel poor households of devoting all the money in the proposed scheme to them vary widely, from £218 a year for a flat to £1,127 for a semi-detached house, across the different households. The modelling is illustrated by the following graph in the report:

Screen Shot 2013-01-21 At 13.43.32

But the statement made in the Times article - also followed up by the Daily Mail - that energy insulation measures could save the average household £310 a year is not correct because the figure applies only to the quarter of households that are in fuel poverty, rather than being an average figure for every household in the country.

Is the £310 figure an over-estimation?

As there are three times as many households in the country who are not in fuel poverty than who are, it seems likely that £310 a year - calculated by assuming that all the money generated would be spent on fuel poor households - could be a significant over-estimation of the savings possible for an average household.

A spokesperson for the Energy Bill Revolution argued that this is not necessarily the case, because it is more difficult to reduce the bills of homes in fuel poverty than other householders. This is because while some households in fuel poverty choose to heat their homes and struggle for other essentials instead, some just live in cold homes - and when insulation measures are introduced, they respond by turning the heating on.

This understandable response means that households in fuel poverty who receive a grant to insulate their homes don't necessarily end up with lower energy bills. Instead, they get warmer homes. So it could be be less expensive to bring down the energy bills of an 'average' household through insulation measures than it is to bring down the bills of households in fuel poverty - or at least, that's the argument.

Real savings possible?

So what's the real figure for average savings? Well, the relevant research by the energy revolution campaign doesn't contain a comparable figure. They have told us however that they will try and calculate a figure - we will update this blog if and when they do.

Realistic?

It's worth pointing out that this is a rather academic exercise in political terms. It would involve the government recycling all of its revenues from the carbon-trading mechanisms the Emissions Trading Scheme and the Carbon Floor Price to insulating UK homes. This application of funds from one revenue source to pay for something else is known as 'hypothecation' - and the Treasury are generally known not to be that keen on it.

But the core point is that the £310 figure cited in the Times and on the front page of the Daily Mail only applies to fuel poor households - so it could well be an overestimate for the average household. We will update if we get more information.

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