There are fast, efficient and low-subsidised methods to extend heat pumps and solar panels
The British government does not want consumers to face higher electricity bills for low-carbon innovations such as heat pumps and solar panels. And neither does he want to use more public money to subsidize the implantation of these devices.
So your green agenda risks getting stuck in the mud. Here’s a solution: give the utilities the task of rolling out devices that help households consume less hydrocarbons, and spread the cost over, say, 20 years. And add other measures to ensure that households save more on their energy use than the annual cost of new equipment.
British electric companies are divided into two. Providers compete to supply light; and the distribution network operators (DNO), regional monopolies, are responsible for the infrastructures. DNOs should be responsible for bringing low-emission infrastructure to homes, because they could continue to charge an annual fee to recover their costs even if customers switched providers. And since they are monopolies, they have a low cost of capital, set at 2.81% by the regulator.
DNOs’ investments within households could be treated the same as those from abroad. They could be added to their regulated asset bases and the charge plus cost of capital would be spread over many years. Let’s call it the Home Infrastructure Plan (HIP).
It could be required to utilities to install a million heat pumps each year, equip a million homes with solar panels, and insulate a million homes by the middle of the decade. Although the government showed interest in something like this in 2017, it did nothing. But the crisis gives him a reason to review his policy. Several US states, as well as Italy, already do.
Giving the NOCs this responsibility would ensure rapid implementation. Plus, when consumers see their bills go down, word will spread. Speed is one of the potential advantages of HIP over another interesting idea: getting banks to let consumers charge the cost of improvements on their mortgages.
Considering high gas prices, the math is already appealing for solar panels. The initial investment pays for itself over 14 years, according to the Energy Saving Trust. Therefore, dividing it into 20 would mean an immediate reduction in their bills for customers.
The pumps, which use electricity, are now somewhat cheaper than gas boilers, costing €1,148 a year, up from €1,171, according to Jan Rosenow, director of the Regulatory Assistance Project’s European program. The problem is that a pump costs 11,900 euros, compared to 3,000 for a boiler. So consumers would have to pay 8,900 more to save just 24 a year: it would take 400 years to pay off.
The Government has already helped a little by eliminating the 5% VAT on pumps. It is also subsidizing the new ones with 6,000 euros a year, which helps a lot. But there is only money for 30,000 a year. And in the country 1.7 million boilers are installed per year. So the plan only addresses 2% of the problem.
For HIP to work, both initial and running costs must be reduced. There are ways. HIP will help because utilities enjoy discounts on bulk purchases. The government is also considering a plan to require heating appliance manufacturers to provide a certain number of low-cost, low-emission devices. This would reduce the price of the pumps by charging a little more for the boilers.
require at utilities putting out household equipment to tender could further reduce costs. Octopus, a supplier, has already found ways to install pumps more efficiently and cheaply. With a military-type deployment, going up one street and then another, there would be even more economies of scale.
The aim should be to mix these measures to ensure that the initial cost of a pump remains around £4,800, once the current subsidy ends: consumers would only have to pay €1,800 more than for a boiler.
Running costs also have to come down. Many economists think that the costs of decarbonisation should shift from electricity to gas. But with gas on the rise, charging consumers even more makes no political sense. And suppressing the tax on electricity would make a hole in the Budgets.
But there is a solution. The Government could exempt from the tax the light used in the pumps. According to Rosenow, this would save consumers £156 a year, bringing the pumps’ annual advantage over boilers to £176. In Denmark it is already done, by offering consumers a discount on their bills based on the average amount used at the pumps.
All this added up would mean that consumers would pay 1,800 euros more to enjoy savings of 209 per year. With the initial cost recouped over 20 years, the bills would quickly drop and the bombs would fly. HIP also has to be fair. Only customers with new equipment need to pay the cost. What’s more, those who want both panels and pumps – or need large ones – should pay more than those who have one or the other. Thus, some consumers will not end up subsidizing others.
HIP should also be extended to the entire country and to different types of households. It’s not intended to replace an existing plan, called ECO, which offers low-income households free insulation and the like. The country also needs an ambitious plan that encompasses all households, and HIP achieves that. It cuts bills, improves energy security, reduces emissions, creates green jobs and distributes the benefits across the country, contributing to the Government’s “leveling up” agenda. What more could you want?
