The UK’s biased mindset towards electricity prices

The UK is on the road to net zero carbon, and the Government is continuing its push to reach this target by 2050. This will inevitably contribute to numerous lifestyle and technological changes, which will need to be implemented by both the Government and consumers. However, a large part of the UK’s consumer-base are still reluctant to make the change, mainly due to the price of electricity.

 

It is clear to see that the prices of both gas and electricity have increased over the last decade. Consumers are often found to be comparing the price increase of electricity against gas. However, this comparison is not an accurate indicator of the price increase indices. To gain a better understanding of this, one must compare the price increase of gas to its prices in the past, and the same for electricity. Between 2010 and 2011, the average electricity prices (incl. VAT) rose by 4.8%. The gas prices during the same timeframe increased by 8.1%.  

Gas VS Electricity price increase

Throughout history, we have heated our homes with coal and oil. With the availability of natural gas at a cheap price by virtue of the North Sea, the popularity of gas central heating grew in the UK. With this resource exploited and diminished from the North Sea, the price of gas has increased considerably. At one point, gas was around 6 times cheaper than electricity. Currently, this price differential has reduced to electricity being 4 times the price of gas. This comparison gives you a broader understanding of the increments in energy prices over time. With lesser reliance on fossil fuels, and more and more electricity generated by renewables, we could see this price gap between gas and electricity lessen.

 

In the UK, electricity as a fuel source has been given a bad name. There are many misconceptions in consumers’ minds, these misconceptions stemming from the ideology that energy companies are highly profitable and are exploiting domestic households by increasing electricity prices. We all know that electricity supplied to every home in the UK is identical – the key differentiator is price. The only route to market for any new energy company is a low price point, but for most companies, this is not sustainable. Many energy companies do not survive in the UK because of this and the 22 energy companies that are no longer in business (as of Feb 21) are proof of this.

From our involvement within the heating industry, we have come across thousands of consumers who have switched from gas to electric heating – some of these customers also complain about their increased electricity bill. However, the reasons for their complaints are often flawed. When you move from one resource (in this case – gas) and utilise another resource (in this case – electricity); it is evident that your costs for the new resource (electricity) would increase. However, you save on not having to use the initial resource (gas). Shifting from gas to electric heating is not only better for the environment, but you also gain a solution that is 100% efficient at the point of use.

 

Electricity prices in the UK are not exorbitant in comparison to other countries with the same GDP. Yet in the UK, consumers always heavily scrutinize electricity prices. As of June 2020, the average price for electricity in the UK was 17.2p/kWh. In comparison during the same time period: Germany (28p/kWh), Denmark (23p/kWh), Japan (19.2p/kWh).

Currently the price of electricity in the UK has reduced further, the average price being 16p/kWh. Compared to countries with similar GDP, the UK has one of the lowest energy prices for domestic consumers.

Countries' electricity prices VS UK

The irony lies in the fact that you hear and see a lot of backlash in regards to an increase in electricity prices, but consumers in the UK will happily pay the increased prices for petrol and other fuels. This signifies a vast difference in consumer perceptions between petrol and electricity prices. The same inference can be made for other household expenditures like water, food, clothing, transport etc. Since 2010, petrol prices have soared by 11p/litre (11% increase) and a 47p/litre increase (61% increase) since the early 2000s. A possible reason for why we don’t behave the same towards an electricity price increase as compared to a petrol price increase; we usually pay for electricity monthly, where as payment for petrol is upfront. There could be a psychological shift in behaviour if paying for petrol was a monthly payment. The price we pay for water has also increased, yet we still waste so much of it and end up paying whatever the monthly bill is with no resistance. In the UK, consumers must refute ideologies in regards to electricity based off misconceptions and base their decisions on actual data. Doing this would enable us to grow as consumers and be open to change, in this case specifically for the betterment of the environment as well.

 

In the financial year of 2020, the average UK household spent 14% of their income on housing, fuel and power, 11% was spent on food and non-alcoholic drinks and a further 4% on clothing and footwear. All of the above are considered as necessities.

UK household expenses

Over the last 3 months, the UK has sold more electric cars than diesel – a huge step in the right direction. Switching to electric cars is not only better for the environment, but also more money in your pocket in terms of running costs. Assuming a 70kW charge at 30p/kWh (for an electric car) VS. 35mpg (for a petrol car); £21 for a 70kW charge (250 miles) works out to be 8p/mile. Whereas for a petrol car: 4.5l/gallon (7miles/litre), assuming the cost of petrol is 130p/litre; works out to be 18p per mile. Transport accounts for nearly 30% of the UK’s total carbon emissions. Hydrogen is another option, but recent research has brought to light that hydrogen is very expensive to produce and not as efficient as electricity, for domestic heating and car charging. Switching to an electric car means, as a country we could achieve our Net Zero Carbon target sooner. Below we detail another example of why we should use an electric car over a petrol car (both manufactured by the same company).

Electric vs Petrol BMW

Analysing past data and the UK consumers’ attitudes towards electricity- it is evident there needs to be more awareness regarding electric heating and electricity prices. There seems to be a bias in the mind-set of consumers. This bias is not as evident in other expenses like water, petrol and council tax that UK consumers incur. In order to achieve Net Zero Carbon, we must welcome electricity with open arms as it is the most viable and efficient solution for greener domestic heating and car charging. Over the last 5 years, our share of electricity being generated from renewable sources has increased by 20%. With more and more consumers switching to electric heating every day; electricity has proven to be an efficient source of energy for domestic heating (with numerous testimonials that can be attested to it). Lastly, as with any form of heating, insulation is paramount. For electric heating to work efficiently, a consumer has to insulate their home to a sufficient standard. This will reduce heat losses from the property, preventing any massive spikes in consumption and reducing energy bills.