An overexposure to network and policy costs is deterring the uptake of heat pumps and electric vehicles, the Energy Systems Catapult has warned.
In a new report, the body called for energy tariff pricing to be reformed so more of these costs are recovered through fixed standing charges rather than volumetric unit charges.
Working alongside the University of Oxford, the Energy Systems Catapult found that the current arrangements may inadvertently distort the market in favour of consumers installing onsite generation such as solar panels and diesel engines, who are able to lower their unit charges and therefore avoid paying their fair share of these largely fixed costs.
The burden is being excessively borne by consumers with higher unit charges, creating an artificial barrier to the adoption of low-carbon technologies that increase demand for electricity such as heat pumps and electric vehicles. Rebalancing standing and unit charges to make them more cost-reflective would improve the efficiency of the energy system and lower overall bills.
“With heating and transport accounting for around two thirds of UK carbon emissions, growth in heat pumps and electric vehicles will be important in meeting our 2050 targets,” said Energy Systems Catapult power systems practice manager Phil Lawton.
“We need to make sure the way we charge for the fixed costs in the energy system reflects these exciting changes in technology and does not discourage consumers from taking them up.
“And we need to make sure consumers that generate their own electricity, through solar PV or diesel, are not over-rewarded, by avoiding some of these fixed costs at the expense of those who use the grid all the time, including vulnerable households.”
The report concluded that recovering the costs of social and environmental policies through general taxation rather than energy bills would lower the marginal cost of operating a heat pump to less than that of a gas boiler. It said even spreading the environmental and social costs more evenly between gas and electricity would be an improvement on the current situation.
It also highlighted the benefits of utilising time of use tariffs for electric vehicles and hybrid heating systems to maximise usage of the existing power grid and reduce peak demand.
Cost reflective electricity tariff
Cost reflective gas tariff
Source: Cost Reflective Pricing in Energy Tariffs, Energy Systems Catapult
Ofgem is currently conducting a significant code review looking at how best to recover residual network charges and is also considering holding a second to examine forward-looking charges and grid access arrangements.