BEIS: Policy costs on energy bills ‘need to be tackled’

Unequal electricity and gas policy costs and taxes must be tackled in order to encourage consumers to switch to low-carbon heating options, the government’s leading heat policy official has told Utility Week.

In his opening keynote remarks at the Future of Heat 2021 conference this morning (12 May), the director of clean heat at the Department for Business, Energy & Industrial Strategy (BEIS) David Capper also hinted that the government is examining a phase-out date for fossil fuel heating systems, like that already announced for petrol and diesel cars and vans.

He said Treasury and BEIS are looking “very closely” at the taxes and policy costs on gas and electricity.

“We are acutely aware that the way carbon costs and policy costs have been levied in the system means that it is better for the consumer to pick high-carbon rather than low-carbon options and that clearly needs to be addressed.

“A lot of the policy and carbon costs have been put onto the electricity side of the bill.

“This makes the economics of low-carbon heating systems, like heat pumps, a lot worse for the consumer than it would be if levies and carbon costs were more spread across the bill and put more on the fossil fuel aspects of the bill.

“It is clear at some point that will need to be tackled in order to enable low carbon to compete more fairly with high carbon.”

Capper’s comments follow newspaper reports that the government is examining moves to shift policy costs, such as renewable power and fuel poverty subsidies, from electricity bills in order to encourage the uptake of heat pumps.

The senior BEIS official also told delegates that the government has been looking “very closely” at whether the market for low-carbon heating could be stimulated by applying a similar approach to that taken in transport.

The government’s announcement of a ban from 2030 on the sale of new petrol and diesel cars and vans has been “very successful” in changing consumer expectations, he said: “We will need to get to the same place in relation to heat and buildings.”

Capper also said the government will “have to go some” to make “strategic” decisions on heat policy by the mid-2020s but added that it is “well placed to do that.”

He said the government’s approach to decarbonising domestic heating systems was working “with the grain of the market”, following the replacement cycle for households’ existing gas boilers.

Helen Seagrave, community energy manager at Electricity North West, said the disparities in policy costs between electricity and gas means that installing a lower-carbon electric heating system is “effectively transferring someone onto a more expensive tariff.”

Dr Jeff Hardy, a senior research fellow at London Imperial College’s Grantham Institute, said that the pace for rolling out low-carbon heating would require a locality-based approach, “probably not dissimilar to the vaccination programme.”

Ian Heasman, director of sustainability at Taylor Wimpey, told the event that the volume housebuilder is looking at air source heat pumps to be the “dominant” type of heating in the homes it is developing by 2025.