Insulating the nation – who will pay for it?

The Government is intent on insulating the nation. They have announced what they describe as a £1 billion package which will help people save money on their fuel bills by loft and cavity wall insulation. That will take the United Kingdom’s spend on insulation to outweigh all other home improvement spends by a huge margin.

Up until now, the existing insulation schemes were paid for by the energy consumers who have a percentage added to their fuels bills.  The energy companies are obliged to spend this percentage on energy saving measures, mostly on insulation although there is some expenditure on low energy light bulbs and on administration of the schemes. The new scheme envisages quite a lot of expenditure on advertising marketing, door to door selling and the like.

Most consumers regularly receive offers from the energy companies to provide home insulation at a discounted price.  Most consumers probably think that this is simply marketing, and that the discounts are not genuine. They are and as they have already paid for the insulation of other people’s homes they ought to get some benefit by taking up these offers.

The way in which energy companies conduct their businesses, and the high profits they make, does not help alleviate consumers’ suspicions. It is probably the wrong business model to get those who profit from selling as much energy as they can to be in charge of measures that save energy.

 The new announcement the energy companies themselves will be spending the money. The Government will not raise taxes for this £1 billion (actually, it is not an additional £1 billion as the Government has announced; the figure is actually £910 million.) The money is supposed to come from the profits of the energy companies.

If the £910 million actually comes from the energy companies’ profits then this expenditure on home insulation is a tax on the energy companies hypothecated to home insulation. If the energy companies act like every other large company they will attempt to off load the cost on the dear old consumer who will see energy bills rise even higher. So far they have been acting as a clearing house for spending what amounts to a tax paid by the consumers on energy saving.

The critical question is whether they will end up spending the £910 million out of their own money or will simply, one way or another, pay for it out of their profits. Interestingly, the announcement did not have the effect of reducing the share prices of the energy companies in by any significant amount, so the market does not seem too worried about the effect on dividends of the Government’s announcement.

The Government want to see every home insulated in the next eight years. That may well happen, but as good as insulation is, what will they do as the insulation degrades and it provides less heat saving year by year? It will not constitute a life time of savings, as claimed by John Hutton, although there will still be worthwhile savings.

As I keep on stressing insulation is good but it should not form the sole focus of energy policy, as it seems to now. Insulation does not last a lifetime – the initial savings are much higher than later savings and we have to take care not to over insulate homes because we must always ensure that lack of ventilation caused by over insulation does not lead to health problems and damage to the fabric of buildings.

The positives of good insulation are savings in energy use which bring with them savings in carbon dioxide emissions and in pollutants being emitted into the air we breathe. It is an important part of a climate change fight, but not the sole or most important part.

The details of this latest insulation policy are set out in a self congratulatory Government Press Statement, which also announces additional cold winter payments and other energy measures aimed to protect the poorest consumer from high energy bills. This present announcement will not help people in the short term with high energy prices, but will provide some comfort on the long term and will attempt to get housing stock waste much less energy than it does at present.

I set out the oddest part of the Government’s Press Statement

If analysis shows that pre-payment users face unjustifiably high charges and no solution is offered by the energy suppliers and the regulator, we will consult on legislation to reduce any unjustified tariff differentials.

This is hardly a vote of confidence in the energy companies that the Government is entrusting to carry out this measures in its announcement or the regulator, is it? Analysis does show that those on prepayment meters pay more in terms of kWh. That is the simple position and I do not see what other analysis is needed


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