Households face net zero penalty for sticking with gas
Households are to be penalised if they do not switch away from gas under net zero plans to be unveiled on Thursday.
Ministers are planning to overhaul subsidy rules so gas is relatively less attractive compared to electricity in an attempt to drive the uptake of green power and hasten the end of fossil fuels.
The proposals risk forcing household gas bills up by as much as £100 a year, while electricity costs will come down.
Speaking on Wednesday, Grant Shapps, secretary of state for energy security and net zero, said: “If we want people to switch to an electricity-based economy, it would be better if [levies] were shifted onto the gas side of things.
“It automatically makes the economics of an electric-driven economy better.”
Electricity is regarded as a greener option because it can be generated from renewable sources such as solar panels and wind turbines. In contrast, gas releases carbon into the atmosphere when burned.
The measures are part of wide-ranging plans being set out by the Government on Thursday to bolster clean energy supplies in the long term.
Ministers are pledging to overhaul planning rules to speed up the building of new wind turbines and solar panels.
Projects to capture carbon underground, insulate homes and produce clean hydrogen are also getting more support.
A key aim of the change is to encourage households to switch to electric-fired heat pumps and ditch natural gas boilers, a major source of carbon dioxide emissions, amid flagging uptake so far.
Currently, households subsidise the growth of green energy such as wind turbines via levies on electricity bills, helping to make electricity more expensive than gas.
These levies, as well as other charges to pay for insulation and support for vulnerable households, currently account for £131 on typical annual electricity bills. Subsidy payments on a typical gas bill amount to only £34.
Ministers fear this price disparity deters people from replacing their gas boilers with electric heat pumps.
In a January review of the Government’s net zero policy, Chris Skidmore MP, recommended “rebalancing” the costs.
Civil servants said on Wednesday they had accepted the recommendation, with a consultation on exactly how to do so to follow.
Options identified by Mr Skidmore included moving levies onto fossil fuels or into general taxation.
No timeframe for the policy change has yet been given.
Mr Shapps said he wanted to “deliver wholesale UK electricity prices that rank amongst the cheapest in Europe”.
He added: “Access to cheap, abundant and reliable energy provides the foundation stone of a thriving economy with our homes and businesses relying on it to deliver our future prosperity.”
Getting people to ditch natural gas boilers is a key part of the national push to cut carbon emissions, with the Government aiming to end the sale of new devices by 2035 although it has stopped short of a ban.
However, uptake of heat pumps – the only currently available mass market alternative – has been slow so far, with some households hesitant over their high cost and the disruption that installation can cause.
Last year, 42,779 heat pumps were installed in the UK – well below the Government’s target of fitting 600,000 per year by 2028.
The Government is extending a grant programme that was due to close in April 2025 until 2028.
This Boiler Upgrade Scheme (BUS) offers £5,000 grants to households buying heat pumps.
But it has been branded as "failing" because of low take-up, after less than a third of the 30,000 available vouchers were issued in its first year.
However, Sir John Armitt, the Government's infrastructure tsar, said extending the scheme in its current form was unlikely to increase demand for heat pumps.
He said: "If it's not actually generating the demand that you would like now, then extending it doesn't necessarily mean that you're going to get that much more take-up."
He said low demand was likely driven by a lack of confidence in heat pump technology among households, as well as concerns over the cost.
Sir John said: "Unless there’s going to be a massive difference in my annual cost, I'll stick with the tried and tested, I think would be many people's reaction."
Sir John, the chairman of the National Infrastructure Commission, has previously said only a ban on the sale of gas boilers would be enough to persuade customers to switch.
A report last month from the Lords Environment and Climate Change Committee found that the BUS was failing because heat pump installation and running costs are still too high.
It also cited low public awareness of heat pumps, a shortage of installers and a lack of independent advice.
Baroness Parminter, chairman of the committee, said: “I am pleased to hear that the Government has agreed to extend the Boiler Upgrade Scheme, and hopes it gives the industry the confidence it needs to invest in the training and development required.
“As we concluded in our recent inquiry, for the Boiler Upgrade Scheme to succeed and help meet Net Zero targets, the government needs to increase public awareness through a properly funded marketing campaign.
“They also need to consider relaxing Permitted Development Rights requirements relating to the distance of heat pumps between properties and stop the misleading messages about hydrogen being an option for home heating.”
David Cowdrey, director of external affairs at MCS Charitable Foundation, said there are not enough insulation installers to meet the Government's targets.
He said: “The promise to insulate 300,000 homes is a good start, but we need to be insulating millions of homes, and the construction, renewable energy, and retrofit industries are awaiting details on how targets will be achieved.
“With a lack of trained workers, the retrofit industry desperately needs long-term investment in skills and programmes to help make upgrades affordable for homeowners and landlords. This will cut both carbon emissions and energy bills.”
It is unclear exactly how the moving of green levies will affect household bills, as this will depend on bill levels at the time as well as which levies are moved.
A newly branded Great British insulation scheme announced on Thursday, which promises to fund energy efficiency upgrades for 300,000 households, will also add to green levies.
A spokesman for the Energy and Climate Intelligence Unit, a non-profit group, said: “With electricity bills having four times the levies that gas bills do, despite being cleaner, re-balancing levies makes sense for the consumer in the long run as electric heating is expected to be the major technology for net zero heating.
“There are various ways to skin the cat, but with the Climate Change Committee first recommending this four years ago, the renewables industry will likely be pleased that benefits of cheaper renewables could now be passed down to consumers.”