The UK in the energy vanguard
Here in the UK, many have taken pride in our enlightened energy policies.
We led the world, under Mrs Thatcher in the 1980s, with privatising state utilities – so our gas, electricity, telecoms etc are all in the hands of private companies. Guarding against the natural tendency to monopolies in such sectors are our industry-specific regulators OFCOM and OFGEM.
More recently (though following an initial lead from Mrs Thatcher), we have been one of the leaders in moving to renewable, ‘green’ energy. In 2019 renewable sources exceeded fossil fuel sources for the first time. Not long ago our media was proudly boasting how we had managed to power the country for two months without using any coal.
Not for us the Japanese/German greenery-gone-amok policies of turning off nuclear power mid life. Not for us the hypocritical and myopic German policies of reliance on brown coal and Russian monopoly gas. And not for us using fracking to unleash new reserves under our precious, fragile, green and pleasant land; we’d rather let the Americans do this in their flyover states and then pay them, now a net energy exporter themselves, a premium to liquify it and send it over to us. Who wouldn’t?
And to top it all, the UK has been one of the fastest markets to adopt Electric Vehicles (EVs), hastened by a variety of subsidies and tax incentives. EVs pay lower car taxes, lower congestion taxes, lower parking fees, and could be purchased with the help of several thousand pounds of subsidy. Over half of new car enquiries are for EVs, and over 20% of new registrations are for pure or hybrid EVs.
Being in the vanguard in 2019
The results of these enlightened energy strategies have seen our CO2 emissions fall faster than most OECD countries. We were paying, until recently, only a modest premium for our greenification. Consumers have had a choice of over 70 companies, and many hundreds of tariffs – allowing such innovations as Electric Vehicle-specific tariffs, empty-property-specific tariffs and tariffs accumulating loyalty points. And our privatised, competitive model has been ‘improved’ with a
Labour Tory retail price cap, restraining operators from milking the can’t-be-bothered-to-shop-around segment.
The chart below shows what this felt like chez FirevLondon back in 2019. Those halcyon days when I worked away from home five days each week, drove a petrol car, and lived in one house – admittedly my Dream Home. The Dream Home consumed around 46k kWh of energy each year – admittedly far more than an average (smaller) UK household – yet cost me less than £250pcm of energy. My car usage was far less than an average household, so the fuel for that cost me only around £1k per year – ensuring I could drive a large-engined funmobile ‘cheaply’ (25p/mile doesn’t add up to much if you don’t drive many miles!). My total fuel costs amounted to less than £4k per year. Of that, the taxman received around £840 p.a. of tax and fuel duties – chiefly from my petrol car. Energy is taxed at a reduced rate of Value Added Tax (VAT) of 5%, compared to 20% for normal expenditure.
How times change
Now, unfortunately, in 2022 it turns out that the world looks completely different.
It turns out that we haven’t been securing our supply after all. We might not import any Russian gas but we have let our entire system be priced based on real time gas prices, which in turn are set by Russian gas – the lessons from banks reliant on wholesale markets failing in 2008 apparently being lost on us.
This is leading to incredible financial windfalls for renewable energy providers, which will doubtless stimulate further such investment that will help us in the long run, but – to paraphrase Keynes – in the long run we will all be dead broke.
This commitment to gas does at least extend to investing in Liquified Natural Gas (LNG) infrastructure, allowing us to import that fracked gas from the USA. And gas from Qatar and Australia of all places. And it allows us to export it to who-needs-LNG-we-have-Russia central Europe.
It also turns out that our competitive market with 70+ suppliers didn’t make any allowance for financial strength, resulting in the around 30 suppliers going bust under the unsustainable price cap. The cost of these bailouts has landed not on the consumers risking fly-by-night suppliers (as it would in many markets) but instead on the rest of us – contributing to ‘standing charges’ doubling in three years.
And, it turns out, the take-up of EVs in prosperous parts of the UK is leading to infrastructure problems with our electrical grid. Developers in West London are not being allowed to connect new homes for more than 10 years.
And while at least we haven’t hurried to shut any nuclear power stations down, it turns out that we didn’t approve a single new nuclear power station for almost 15 years, haven’t built one for 20 years, and we are on course to have a third less nuclear power by 2050.
So with Europe’s gas supply chain being viciously jerked by Putin’s Kremlin, the retail price cap has been shooting upwards. The latest announcement, in late August, shows pricing from October reaching over 50p/kWH for electricity, and 15p/kWh for gas – both around 5x the prices back in 2019.
Assessing 2022: dual homes, electric vehicle to boot
Since the end of 2021, I have now got two homes to deal with. The new home, my Coastal Folly, was built about 10 years ago by a paid up member of the eco green brigade. It runs entirely on electricity – with air sourced heat pumps and an induction oven. It has the gizmos – including underfloor heating, instant-on hot taps, warming drawers, a wine fridge and a built in coffee machine. When I inherited the property it was consuming 26k kWh (i.e. 26 MWh) a year of electricity. This is significantly less energy in total than my Dream Home in London, but the Dream Home’s heating is by gas which is a lot cheaper. So I was bracing myself for a significant hike in my annual energy bills.
At the same time as buying the Dream Home, I swapped out my petrol-driven funmobile for a more practical modern Electric Vehicle. Going increasingly ‘all in’ on electricity. The EV is doing regular return trips between the Dream Home and the Coastal Folly – over 200 miles each trip. So my mileage has increased around fourfold – making me now an above average UK driver (in mileage, if not ability).
Mindful of the steeply increasing energy costs, Mrs FvL and I have been pruning our energy use considerably. In the last two years we have:
- Replaced many of the Dream Home’s single glazed windows with double glazed, modern replacements
- Fitted a new roof in the Dream Home, with improved insulation
- Turned down the heating / hot water times considerably, especially in the Coastal Folly
- Dialed back the Dream Home’s underfloor heating in the main bathroom
- Serviced our 7 year old boiler regularly, and bled the leaky radiators almost weekly
Spurred on by inheriting a smart meter in my Coastal Folly, I have finally had the Dream Home’s meters upgraded to smart meters. Smart meters make a massive difference to one’s state of mind, especially for analytical test-and-measure types like myself. I love having the realtime monitoring and historic logging that the meters give me. I now have a strong sense of exactly how much my office desk arrangement costs (about 200W, so about 2 kWh over a working day), the impact of turning lights off when moving around the house (not much, as most of my bulbs are now LEDs), and what my Dream Home’s garden electrical bits/pieces are costing me (about 4 kWh a day).
New energy me, 2022 version
So, the latest price hikes are a trigger for me to examine what my combined energy bill now amounts to. Based on the current, about to be superceded, prices the chart below shows my estimate of the current damage.
Despite the shocking headline figure, there is quite a lot of good news contained in the analysis above:
- My Dream Home’s energy usage has dropped 26% – demonstrating that what gets measured, gets done. I’m now consuming around 34k kWh (34 Mwh) a year in this home, down from 46Mwh. That’s still a lot – around 2x a typical house – but I’ve saved one average household’s worth of energy consumption.
- My Coastal Folly’s energy consumption is ‘only’ 15k kWh a year, I estimate. This is around 40% lower than when I inherited it, for various reasons. And it’s very similar to an average UK household. Even though the Coastal Folly is around 2x bigger than an average UK home, and significantly bigger than my Dream Home, my Coastal Folly’s modern construction, use of energy-efficient heat pumps, and relatively low occupancy rates are all helping to minimise its energy consumption.
- My total home energy consumption is barely any higher than in 2019. Eat your heart out, Paris accord.
And there is further good news for me, in that the taxman is getting significantly less out of me for my energy usage. But for the country as a whole, this is not good news. No wonder the government’s sums aren’t adding up. Despite my energy spend more than doubling, my tax/duties have dropped from around £800 a year to around £500 a year. Most of this is because I have stopped driving a petrol-powered car. Expect the UK government to take a leaf out of Australian state governments’ books and start charging additional tax on EV drivers.
And there is plenty more bad news:
- Ouch – my total energy bill now exceeds £10k p.a. An increase of £6k per year is attention grabbing. But what really hurts is how little discretion I feel I have over that increase – most of my annual expenses of this size are things I make conscious choices about every week – such as eating out, travelling, and shopping. But my energy bills are very hard to make short term savings with.
- Those standing charges – the ‘fixed’ cost of having any energy at all – have almost doubled. This is pretty scandalous, given that the network as a whole is creaking at the seams. It reflects, mostly, the cost of bailing out those failed suppliers.
- My EV is now costing, per mile, a pence/mile that plenty of petrol-powered cars can beat. Expect the rate of adoption of EVs to slow down.
Energy as a property tax
The OFGEM announcement last week confirmed the next level of the retail price cap. While anticipated, the figures are truly terrifying. Here are my 2022 expenses, at the October price cap levels (and in fact assuming we keep the June standing charges – which is probably too optimistic). My energy expenses will, from October, exceed £20k per year.
I am an above average consumer of energy. But I am not a 1%-er, energy-wise. If I am facing costs of £20k for driving an EV 15k miles a year and consuming <50k kWh (50MWh) of energy at home then hundreds of thousands more across the country will face similar, or worse. And many of those people do not have the six figure income that I am fortunate to have, nor some of the options that I have – e.g. renting out either home on AirBNB, installing solar panels, or turning one house ‘off’. These figures spell ruin. Something must be done. My strong hunch is that something will be done – let’s watch and learn what it might be.
In the meantime, I’m curious to know in comments – how many 000 kwh a year are you using? Have you tried reducing usage – and if so, with what success? What do you think the government should do about the impending financial disaster?
(NOTE: Updated to correct some missing ‘ks’ after comments that my Coastal Folly consumes 15k kWh, not 15kWh. I have stuck to k kWh instead of MWh because our statements quote everything in kWh and pricing is in kWh and not everybody can readily translate from M into K. Thanks for the comments!)