Improving the thermal performance of UK homes could deliver climate and energy security at a fraction of the cost of nuclear power, argues Kingspan’s Rita Singh
Against a February backdrop of rising energy prices, a price cap set to climb even more, and further pressures arising from the war in Ukraine, the government’s strategy to tackle the cost of living has certainly turned up the dial on the energy debate. The announcement came following April’s Energy Security Strategy, which proposed eight new nuclear reactors and the continual replacement of boilers with heat pumps.
The Chancellor’s plan to tax the profits of North Sea oil and gas companies has been controversial with Conservative backbenchers, but the £5bn it is expected to raise has been authorized to help struggling households with fuel costs. However, an Investment Allowance built into the Energy Profits Levy – allowing companies to reduce their tax burden by 90 per cent for every pound spent on investment – could lead to further North Sea oil and gas exploration.
This is an important step to help families, but it will only be effective in the short term. However, the negative impacts of continued North Sea exploration could be felt for decades or even centuries. The Institute for Economic Affairs (IEA) has specifically called for no new oil and gas fields as essential to reaching net zero.
As for nuclear power, it needs to be part of the UK’s energy mix, but it won’t come online or deliver cost benefits for consumers for several decades. Reactors will take years to be approved, constructed and to enter their operational life, and unless action is taken, those years will hit our wallets and our planet – hard. Moreover, the National Grid does not currently have the capacity to take on the electrical equivalent of the UK’s total fossil fuel consumption.
Shifting the climate goalposts to alleviate fuel poverty is not the only choice available. We can benefit consumers while remaining on track to meet our climate goals, at a fraction of the cost of nuclear power, and without overloading the National Grid.
The answer is good, old-fashioned energy efficiency. The IEA concludes that energy efficiency needs to be three times the average rate currently achieved over the past two decades to have a direct impact on household energy bills, and that efficiency measures will be crucial in achieving this.
In other words, reducing demand through insulation (which saw VAT removed in the Spring Statement) is essential, if the government’s plan to drive heat pump adoption is to benefit both our planet and our pockets. Based on current fuel costs – 7p for gas and 28p for electricity per kWh at the current cost cap – our modeling of homes with different levels of insulation showed that putting a heat pump into an unimproved home could actually lead to rising bills. However, the cost of heating a well-insulated home is less than half of the cost for an average home, and almost a quarter of the solid-walled house.
In the longer term, we need to weigh the costs and energy outputs of nuclear power against the benefits of insulating our draughty housing stock.
The Energy Security Strategy proposes eight new reactors. Based on the current cost of Hinkley C (anticipated at £25-£26 bn), this could cost £200bn – a bill which would ultimately be footed by consumers.
Hinkley C is currently expected to add 3.2GW of energy to the National Grid when it is finally commissioned, so eight new reactors would be expected to supply 24-25GW. But according to analysis by the Energy Efficiency Infrastructure Group (EEIG) and others, the scale of the efficiency opportunity is similar, but cheaper.
If all homes were brought up to at least EPC Band C – through measures like loft and wall insulation, double glazing and solar panels – energy demand in homes could be cut by 25 per cent. This represents an energy saving of 18-19 GW. Not only is this equivalent to the annual output of six power stations the size of Hinkley Point C, but based on HM Treasury’s own methodology for energy and climate policy, the net present value of this saving would be £7.5bn.
This calculation is based on three estimates as to the cost and timescale of bringing homes up to this level of energy efficiency, the first being an estimation from the department for Business, Energy and Industrial Strategy last year which put the cost between £35 and £ 65 billion across the UK to 2035, depending on factors including the number of homes, and the practicalities and affordability of renovation.
Meanwhile, the EEIG estimates £73bn to reach the same level of efficiency by 2030, and the Climate Change Committee’s Sixth Carbon Budget pinned the cost at £55bn of investment to 2050, as part of its balanced net zero pathway for the UK. This latter calculation accounts for the cost insulation of 3.1 million cavity walls, 11 million lofts and 3.4 million solid walls (with a priority on the 1.2 million homes occupied by fuel poor-households), together with floor insulation, heating controls and other measures.
Based on these estimates, by bringing all UK homes up to at least EPC Band C we could save the energy produced by six reactors (18GW) for the cost of about three reactors, or some £75bn to £78bn.
By comparison, those three reactors would only have delivered just 9-12GW of energy.
On these estimates, it is clear that a national energy saving scheme needs urgent exploration. The government should commit to further consultation on the potential costs of improving UK homes, as well as cost benefits to consumers. Money is tight, and we need to get the most bang for our buck.
Rita Singh is head of public affairs at Kingspan