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Switching Renewable Subsidies To Gas Will Make Little Difference

October 14, 2021

By Paul Homewood

 

It is not only the UK that is thinking of switching green levies from electricity to gas.

But this analysis inadvertently highlights why the whole idea is so ludicrous:

 

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In the UK, consumer prices for electricity are five times more expensive than for gas. It is a disincentive to adopt electric heat pumps. To make things harder, 23% of the electricity price comes from climate and social levies. It’s just 2% for gas. No wonder the UK continues to install about 1.7 million gas boilers a year. Jan Rosenow and Richard Lowes at RAP call for changes that will incentivise customers to buy heat pumps while having a minimal effect on their total bill or the revenues raised, according to their calculations. One way is to simply move the levies from electricity to gas. The Netherlands and Germany are planning to do just that. Sweden has done it for decades. But such changes require serious policy reform and may face political barriers. Much simpler would be to minimise taxes on the electricity consumed by a heat pump, as Denmark started doing this January. Despite heat pump sales rising, without a drastic change it’s difficult to see how the UK will reach its target of 600,000 new heat pumps per year – it’s only in the tens of thousands now.

Every year households in the UK install about 1.7 million gas boilers. In May, the Heating and Hotwater Industry Council reported that 2021 looks to be a record year for gas boiler sales, with year-to-date sales up 41 per cent from 2020. So far, low-carbon heating occupies a small — although growing — niche in the heating market.

One important factor supporting a booming boiler market is quite simple: Gas is cheap and electricity is expensive. Residential electricity prices per kilowatt hour are currently around five times higher than gas prices. This means that switching to a heat pump, even with an efficiency of 300 per cent, does not offer bill savings for customers on a standard tariff.

This is partly a political choice. Legacy policy costs drive part of the difference in price. Most of levy-funded energy and climate policies, which make up 23% of the total household bill, are presently paid for through electricity bills. In the UK, these legacy costs include charges for policies such as feed-in tariffs, the Energy Company Obligation, Contracts for Difference, the Renewables Obligation and the Warm Home Discount.

https://energypost.eu/redesigning-uk-electricity-taxes-to-boost-heat-pump-sales/

For a start, let’s get away from the misleading use of the term, levies and taxes, which are intended to distract attention from the truth.

Apart from the tiny Warm Homes Discount, all of these added costs are SUBSIDIES for renewable electricity. It is therefore perfectly logical that they should be included in the cost of electricity, so that the price reflects the cost of generation.

There is no logic in adding the cost of subsidies to the price of gas any more than adding them to the price of food or petrol.

In any event, the switch will make little difference to the relative cost of heat pumps. Subsidies currently cost domestic customers about 2.5p/KWh, a total of £2.6bn a year. This brings the electricity price up from 12.5p to 15.0p/KWh. (These figures are probably out of date now, but the comparison remains the same)

Annual domestic gas consumption is 300 TWh, so £2.6bn would equate to 0.9p/KWh, increasing gas prices from 2.5p to 3.4p/KWh.

In other words, electricity will still cost nearly four times as much as gas. With heat pumps working at 300% efficiency, that still means they will be more expensive to run.

In any event, the reason why barely anybody wants heat pumps has nothing to do with the running cost, as people have no idea what they cost to run. It is the fact that they will have to fork out £10,000 plus to install one, not to mention the cost and hassle of insulation and replacing radiators.

 

There is, however, one fatal flaw in the argument employed by the authors of this study. They claim that switching the subsidies to gas is a zero cost option. It may be in the short run, but eventually, when nobody uses gas anymore, the subsidies will have to revert to being added onto electricity bills.

Under that scenario, homeowners will have paid out £20000 for heat pumps, but will still have to pay the cost of subsidies on their electricity bills. In other words, a double whammy.

38 Comments leave one →
  1. Chaswarnertoo permalink
    October 14, 2021 6:10 pm

    Most UK electricity is made by burning gas. More greentard insanity.

  2. October 14, 2021 6:25 pm

    Wind-powered electricity generation being dud, in reliability at least, and horribly damaging to the environment, what is stopping those in chargge admitting that and calling a logical halt to the broken reed of wind turbines?

  3. Vernon E permalink
    October 14, 2021 6:58 pm

    There are only two ways ourt of this mess. The first is to develope the Allam Cycle to produce electricity and effectively capture carbon dioxide for use or sequestration. This means going through the gate of oxy-combustion with its enormous cost implications and technology (in the equipment) which is on the far frontier of technology, but apted to burn storable liquid oil fractions (naphtha). The second is a bit more simple. Burn domestic available coal.

    • Mikehig permalink
      October 14, 2021 9:11 pm

      “This means going through the gate of oxy-combustion with its enormous cost implications and technology (in the equipment) which is on the far frontier of technology,”

      You’ve made similar comments before but have not provided anything to support them. You make it sound like some far-fetched dream, a bit of engineering fantasy. The reality is that the large-scale pilot plant worked as expected and industrial-scale plants are now being built.
      Netpower – the company commercialising the Allam process – claim that the plants will be cost-comparable with conventional CCGT in due course and will be better than them when a value is attached to the captured CO2 (eg to replace the fertiliser plant by-product!). They are building plants of 300 MWe (four of them iirc) so we will soon have the proof of the pudding.

      • Phoenix44 permalink
        October 15, 2021 9:02 am

        “…in due course.” The claim of every Green technology and not a single one has ever got there. The problems aren’t technical they are physics. The energy required would be better used to just provide energy.

      • Vernon E permalink
        October 15, 2021 10:59 am

        Mikehig: I have already given the refernce to my main source which is “Process and Carbon Footprint Analyses of the Allam Cycle Power Plant Integrated with an Air Separation Unit!” 2019 by D Fernandes et al.

  4. Joe Public permalink
    October 14, 2021 7:42 pm

    “…. heat pumps working at 300% efficiency, that still means they will be more expensive to run.”

    That’s not the least of it.

    Under-powered heat pumps must run for many hours longer than appropriately-sized-for-the-system-to-which-they’re-connected rapid-response boilers. In winter, those under-powered heat pumps will have to run nearly 24/7.

    Rapid-response boilers will be switched-off overnight need only be switched-on maybe an hour before householders rise each morning. Boilers can also be switched off whilst householders are out (working or playing).

    Then we have those wonderful Smart Meters, the devices installed to enable the highest electricity prices to be charged at the very hours most heat pumps call for most heat for most of the time – Kalte dunkelflautes in Januaries.

    Voters in 20 million gas heated households will not be pleased with BoJo & the Tories.

  5. Ron Arnett permalink
    October 14, 2021 8:24 pm

    If I understand this correctly, the plan is to deliberately raise the price of natural gas so as to cause more electrical consumption. Are they so out of touch with reality that they don’t know what is happening with the current natural gas market? Are they so out of touch with reality that they don’t know the means by which most of the electricity is produced in the U.K?

  6. October 14, 2021 8:35 pm

    As regards heat pumps, it is likely most existing homes will need a supplementary source of heating for the coldest months. In addition, having looked at the exterior of a selection of houses locally I do wonder where heat pumps will be installed, as logically they will need to be next to the existing pipes. It would be impossible in my own home to achieve this.

    In addition I can’t begin to see where I could find space for the average internal 180 litre water cylinder needed.

    I couldn’t possibly achieve the insulation standards needed anyway for an air source heat pump to work properly.

    • T Walker permalink
      October 14, 2021 9:14 pm

      Don’t worry Tony, that nice Princess Nut Nut says it will all work splendidly 😊

      • Chaswarnertoo permalink
        October 14, 2021 10:21 pm

        With her degree in theatre studies and art history….

      • pdp1140 permalink
        October 15, 2021 11:25 am

        @Chaswarnertoo With that degree she believes it can all be achieved through smoke and mirrors.

    • John Hultquist permalink
      October 16, 2021 4:34 am

      “… homes will need a supplementary source of heating for the coldest months”

      My house is all electric. The heat pump (a) requires electricity, and (b) has auxiliary resistance heaters that — for a price increase — take over when outside air is cold.
      I have a modern wood stove that will provide heat and a cooking surface if the electricity goes off. When it is cold but the electric is there, the wood stove will provide heat and the “air handler” fan can move it around the house in the existing duct work. The house was designed with such issues in mind. (Trees for fire wood are on the property; I have a chainsaw, axes, and a splitting maul.) Also, near the Columbia River in Washington State electricity is not expensive. There are several massive dams.
      A house, apartment, flat (or whatever) that is not designed with these things in mind is not a candidate for a heat pump.

  7. Phoenix44 permalink
    October 14, 2021 9:13 pm

    Assuming gas use declines over time, then either the costs will have to keep increasing for gas use until the final few users are paying vast sums or they will have to switch the subsidies progressively back to electricity.

    Why we can’t just have a simple carbon tax if we have to do this.

    • Graeme No.3 permalink
      October 14, 2021 9:50 pm

      But Phoenix:
      How are you going to get the electricity to run these heat pumps? Current policy is to rely on wind and gas burning while hoping that (someday) nuclear will be installed.
      Wind generation has dropped from 25% share last year to 7% now. This might improve but if the climate turns cold and the big storms return, then those turbines will still be a weak reed.
      Nuclear doesn’t look like increasing before 2030.
      That leaves gas (in short supply) and coal (already burdened with the carbon tax). Adding more tax to gas will lead to people freezing to death (or burning wood if they’ve still got fireplaces).
      May I recommend WHEN WILL THE LIGHTS GO OUT? by Derek Birkett – a retired electrical engineer and grid controller. Published in 2010 and predicted just this crisis (including the drop in wind due to weather patterns). Well worth reading if you can get a copy.

      • 1saveenergy permalink
        October 15, 2021 12:30 am

        “WHEN WILL THE LIGHTS GO OUT? by Derek Birkett ”

        excellent book !!

      • Phoenix44 permalink
        October 15, 2021 9:07 am

        I’m not advocating heat pumps, simply pointing out that if fixed subsidy costs are put on gas consumption and gas consumption declines, then the amount of cost per unit of consumption must increase. It seems reasonable to assume that the rate of conversion from gas will be the wealthiest first, the poorest last, thus the poor will have increasingly expensive gas. The only way to avoid that is to shift the cost back to electricity as gas consumption declines. In other words its a tax that is designed to ge a disincentive but which if you are disincentivised, you still pay anyway. That’s how stupid it is.

    • bobn permalink
      October 14, 2021 10:37 pm

      Better still. Stop all govt interference and tax and subsidy and just have a free market. Free markets are a novel idea that sadly UK politicians refuse to countenance. Probably because they work and prove politicians are unnecessary parasites.

  8. David permalink
    October 14, 2021 9:51 pm

    In view of the high capital cost of heat pumps surely it would be best to install and use simple resistive electrical heating units. The installation and maintenance would be minimal and they are instantly switchable. Nuclear fission for the near future can support it, followed hopefully by unlimited power from nuclear fusion.

  9. October 14, 2021 10:06 pm

    Just end UK decarbonisation: simple, realistic, money saving and with no adverse effects on climate.
    UK manmade CO2 negligible now.

  10. October 14, 2021 10:31 pm

    The PM and his wife should take a one-way ticket to tour and coax and harangue the Eastern nations who sensibly won’t curb greenhouse gases fo fear of ruination and civil mayhem.

  11. Ian PRSY permalink
    October 14, 2021 11:18 pm

    None of this matters to the public sector, who can indulge in virtue signaling at the taxpayer’s expense. “Beneficiaries” of this wonderful product will be less likely to complain if they haven’t laid out any cash for it. My council’s going flat out to go all electric, encouraged by HMG.

  12. cookers52 permalink
    October 15, 2021 7:47 am

    Gas, Electricity, Water, Transport , Health all the UK infrastructure is not fit for purpose and the government have no feasible plan for the future.

    The muddle continues with their approach to managing flood risk, the Flood and Water Management Act 2010 still has not been fully enacted, Section 3 which gave responsibility and resources to local councils has been abandoned with no scrutiny of this decision.

    • Phoenix44 permalink
      October 15, 2021 9:18 am

      Add in education and universities. You could add agriculture as well. Look at thd fuss surrounding trade deals with Australia and the US to see how much more expensive our food has been over the last 30 years than world prices. If you assume that over the last three decades GDP growth has been 0.5% below what it would have been with no government interference, we would now be 20% richer. In other words we could have increased say NHS spending by 20% without any increase in tax rates and with everybody still be much wealthier. If we had fixed NHS spending as a percentage of GDP (as with foreign aid) we might have been incentivised to maximise GDP.

  13. October 15, 2021 9:01 am

    Here comes the heat pump bribe…

    Households pushed to scrap gas boilers with £5,000 grant
    Prime Minister to announce upgrade scheme, and ban installation of new gas boilers from 2035, as part of long-awaited heat strategy

    14 October 2021
    New gas boilers will be banned from 2035 and families are set to be offered £5,000 grants to buy heat pumps for their homes under a landmark green strategy to be unveiled next week.

    https://www.telegraph.co.uk/politics/2021/10/14/households-pushed-scrap-gas-boilers-5000-grant/

    Electric boilers are available now for a lot less than the £5k ‘grant’.

    • Phoenix44 permalink
      October 15, 2021 9:30 am

      No doubt on the back of the opinion polls. Johnson gets emboldened every time the polls show “support” for his madness. But who are we supposed to vote for when Labour not only want to outdo the Tories on Greenery but add their own stands of insanity in other areas?

  14. October 15, 2021 10:45 am

    The subsidy for six hundred thousand heat pumps a year is a lot of money, which the country doesn’t have. More taxation to raise this for a less than effective product powered in the main by gas.
    The aim is to de carbonise the grid by 2035, but I cannot see that being remotely possible given the extra demand that heat pumps and evs will add. Not only that but the difference between summer and winter load will significantly alter as heat pumps will work for about four months of the year. OK some may use dual purpose to cool their homes but really that is not significant for the U.K., despite the met office’s predictions. This will mean shutting down a lot of capacity and that is also another cost to the consumer ultimately.

  15. Vernon E permalink
    October 15, 2021 3:58 pm

    Esp Mikehig: the discussion about Allam Cycle and NET Power is fascinating and puzzling. Maybe if our masters persist in the lunacy of net zero it will have an important part to play. A 300 Mwhr plant will require a 3500 tpd oxygen plant (ASU). To put this in context when I worked in that business in the mid 1970s the largest ASU in the UK was at British Steel’s works in Scunthhorpe, at about 1100 tpd. The lights of Scunthorpe dimmed when the air compressor was started. The holy grail then, for the big four (BOC, Linde, L’Air Liquide and Air Products) was a 2000 tpd ASU. There are now even larger units but 3500 tpd is at the outer limit. The comment is frequently appears that the Allam based process will be cheaper than conventional CCGT with CCS – i.e. cheaper than technology that doesn’t exist yet. What’s that about?

    • Mikehig permalink
      October 17, 2021 9:40 pm

      Vernon: I did a spell in the industrial gas business too – with Air Products in the 80s (when Rodney Allam was the chief process engineer).
      Off the cuff I would have agreed with you about ASU capacities but I thought it worth updating my knowledge. A very brief search found both Linde and Air Liquide quoting ASU capacities of over 5000 tons per day. From Linde’s website:
      “Teaming up to deliver the world’s largest ASUs for Jamnagar refining complex in India….Each of the five ASUs is designed for an oxygen production capacity of 5,250 tons per day (tpd).” Things have moved on a bit!
      As for cost comparisons, with aim of Netpower, aiui, is to be cost-competitive with CCGT alone. I don’t know about CCGT + CCS but I think there are a few coal plants working with CCS. The additional costs are substantial and efficiency suffers badly due to the parasitic power losses. Boulder Dam is one such case: the CO2 is valuable for EOR which makes the economics viable.
      Let’s not forget that the Allam economics are helped by finding buyers for the CO2 (or being paid to sequester it) on top of the by-product nitrogen and argon.
      As for whether or not the Allam process will be technically proven, we should know in the next year or two. As I said above, they are building 4 large plants of 300 MWe.

  16. October 15, 2021 4:32 pm

    Simon Webb has almost 100K subscribers on YouTube
    and puts out 2 short videos each day on issues MSM won’t touch

  17. StephenP permalink
    October 15, 2021 7:18 pm

    The BBC are pushing a ‘documentary drama’ programme called The Trick on BBC One Monday at 8.30pm, supposedly based on Climategate where they say they are setting the facts straight.
    We will see.

    • dave permalink
      October 17, 2021 8:42 am

      You are going to waste your time watching it? By the ‘The Trick’ they will mean the way perfectly reasonable and innocent emails were twisted by we knuckle-dragging, right-wing, maniacs.

      BBC delenda est!

  18. cookers52 permalink
    October 16, 2021 7:45 am

    The noise pollution emanating from air source heat pumps will be intrusive, far worse than the noise we experience from gas boilers.

  19. October 16, 2021 8:18 am

    Drop the heat pump project completely -it is nonsense, too costly and virtually useless for reducing CO2

    • Phoenix44 permalink
      October 16, 2021 9:09 am

      But that’s the problem with the entire project – all the technologies are rubbish and all have significant associated costs and problems. Heat pumps, EVs, H2, biofuels and renewables are all very poor solutions. And nit just each individually but they all interact to create further problems. Hardly surprising when this entire force was put together by a tiny group of not very bright people driven by ideology.

      • October 16, 2021 10:39 am

        Couldn’t agree more.
        With negligible emissions proportionate to the planet’s total, UK has no need for decarbonisation, especially since China etc. ignore it.
        In fact, the sun and cosmic rays and water vapour drive the planets ‘heat while CO2’s role is trivial.
        It is all a wild goose chase.and ruining us in the west.k

      • Russ Wood permalink
        October 16, 2021 3:13 pm

        And even the “Great Saviour” of battery technology has reached its limit. Batteries, whatever they are made of, use basically CHEMICAL reactions to store and emit electrical power. Despite a lot of cleverness with rare-earth elements, there really doesn’t seem to be much further that batteries can go. Personally, I’m glad that I now live in the Southern hemisphere, even if the rains haven’t come yet and it’s 30C in the shade!

      • dave permalink
        October 17, 2021 9:59 am

        “…they all interact to cause further problems…”

        I think this is a good point. The assumption of people like Johnson is the opposite – they think that the technologies will somehow all interact to make the individual practical problems vanish.

        As for batteries, the present cost for 1 KWH storage in the best lithium ones is, I believe, about 150 pounds. So, to store enough electricity to run a one-bar fire in every room of a house for a week would require a capital investment of more than two hundred thousand pounds.

        I estimate that the fully ‘decarbonized’ economy we* are being forced towards would need storage, for the occasional but inevitable bad winter situations, amounting to 30 GW x 100 HR = 3,000 GWH which would cost a cool
        six hundred million million pounds. It would be feasible in purely financial terms to spend one trillion pounds over the next twenty years on battery storage. To what price would battery storage have to fall, to manage that goal of 3,000 GWH, with that budget? Less than a penny a KWH! Technology is being asked to immediately create a twenty-thousand-fold reduction in price.

        The first of Professor Parkinson’s Laws was that the amount of time spent seriously analyzing an issue was inversely proportional to the cost and folly
        involved.

        * And we are just one small country. Imagine what it would take for the whole world to go down this route.

        Two years since the start of Solar Cycle 25:

        https://www.spaceweather.live/en/solar-activity/sunspot-regions.html

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