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Getting off gas: future risks for energy poor households

image credit: Louise Sunderland from the Regulatory Assistance Project

The gas package and renovation wave in the European Green Deal raise new opportunities for ending Europe’s dependence on gas. We need to think about what this means for energy poor households, writes Louise Sunderland from the Regulatory Assistance Project


If you are in pain, you go to a doctor who prescribes a painkiller. This cheap, proven and readily available treatment relieves your pain and temporarily solves your problem. However, if you continue to take the pills, you risk the considerable downside of long-term reliance without addressing the cause sustainably.

For many households experiencing energy poverty — where a household is unable to access or afford sufficient energy services to meet its needs — their prescription has been a gas boiler.

Energy poverty programmes in the UK have relied heavily on providing efficient gas boilers, in some cases converting direct electric heating or installing new gas heating systems, to reduce energy costs and warm up homes. Pilot programmes have even seen doctors “prescribe a boiler” by referring households into an energy poverty programme. Gas regulation also supports new connections to the gas grid for low-income households through a commitment to spread the cost across other users to avoid charging the low-income household.

Like a pill prescribed for your pain, connection to gas is relatively cheap, proven, available — when publicly funded — and provides immediate relief in terms of lower bills and warmer homes. But, like medication, reliance on gas in the long term, and the difficulty in getting off gas, poses a huge risk.

In specific situations, symptoms are so extreme that using gas to provide temporary relief is justified, coupled with a long-term plan to transition away. Poland is a notable example, where the air quality crisis brought on by burning coal for home heat seriously affects public health. As a more general rule, new gas connections can tie households into an unpredictable future.

Route maps to decarbonisation point out that the future of domestic heat is electric or district. Government incentives and clean heat programmes encourage better-off households to move away from gas to renewable heating systems. But we have to ask ourselves if we are leaving low-income households behind in the energy transition and locking them into dependence on gas that leads to high costs or uncertainty? At what point does prescribing a gas boiler do more long-term harm than good?

 

A CRYSTAL BALL FOR THE COST OF GAS

Gas is, on average across Europe, three to four times cheaper than electricity per kilowatt-hour for households. Of the final cost of gas, the price of the fuel accounts for around 50% of the average bill; the other half is divided between infrastructure costs and taxes. I won’t try to predict future gas prices and their fluctuations across Europe, but the following insights allow for speculation.

As for the fuel itself, according to its carbon content, gas is underpriced. Electricity bills often shoulder more of the costs of carbon than gas. This is largely due to the price of carbon in the EU Emissions Trading Scheme, which adds to electricity prices, not gas. If the current European Green Deal proposals — to extend the Emissions Trading Scheme to buildings and better align the Energy Taxation Directive with the carbon content of fuels — go ahead, the carbon price added to gas will rise, and with it, the cost of gas.

Many European countries are already implementing a future which is much less reliant on gas. A number of Member States have policies which prevent the use of gas heating in new homes — like the UK or Ireland — or aim to wean all homes off gas entirely, like the Netherlands. These sticks, along with the carrots of renewable heat incentive programmes, create a future in which smaller numbers of households are connected to a country’s gas infrastructure. A smaller number of users means each household would need to pay a greater share of the infrastructure costs.

Furthermore, timescales for infrastructure investment are long. Yet, as households move away from gas, large parts of this infrastructure will become redundant. Therefore, gas companies need to recoup infrastructure investment over a shorter period of time. Fewer users and a shorter timeframe over which to spread the costs mean higher costs of infrastructure for each household that remains on the gas grid.

UNCERTAIN COST OF FUTURE FUELS

The future cost of fossil gas and its replacements is the million-dollar question.

As demand for fossil fuels in the next decades drops, we can expect the wholesale price of fossil gas to fall. This has been seen, in an extreme way, during the coronavirus lockdown. The sharp retraction of industrial and commercial activity, and therefore demand for energy, contributed to rapidly falling wholesale gas prices.

But fossil gas is not the fuel of 2050. Hydrogen appears to be waiting in the wings to replace fossil gas in the grid. However, hydrogen is unlikely to be available in large quantities across Europe for home heating, as the available hydrogen goes first to those uses that rely on high temperature heat – which hydrogen can produce but electricity cannot. In the various 2030 and 2050 European decarbonisation scenarios, hydrogen for use in buildings is almost absent in 2030 and provides a small share of energy consumption in only some 2050 scenarios.

Importantly, projections show hydrogen will likely be significantly more expensive than a heat pump for home heating, and adapting to hydrogen will require upgrades of both the grid and home heating systems.

The availability and cost of hydrogen for domestic heat are at best uncertain. If low-income households are disproportionately reliant on gas, they will pay higher costs for infrastructure and be open to the uncertainty and price shocks of replacement fuels.

 

ENDING THE DEPENDENCY ON GAS

Getting off gas will not be easy, and it will be harder still for low-income households who face greater barriers to electrification — the upfront cost of renovation and heat pump technology, lack of space in smaller homes for heat pumps and heat storage, and the lack of control over fuel choice in rented homes.

In our rush to alleviate energy poverty, the prescription of the cheap painkiller risks saddling households with a dependence that may cost them dearly in the long run. Soon, we will need to start enabling low-income households to decarbonise, not just reduce fuel costs in the short term. This means aligning decarbonisation and energy poverty strategies, and funding energy poverty programmes that provide clean heat solutions, or at least enable future electrification.

Promote clean heat for low-income households first rather than last.

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Discussions

Matt Chester's picture
Matt Chester on Jul 15, 2020 12:29 pm GMT

As for the fuel itself, according to its carbon content, gas is underpriced. Electricity bills often shoulder more of the costs of carbon than gas. This is largely due to the price of carbon in the EU Emissions Trading Scheme, which adds to electricity prices, not gas. If the current European Green Deal proposals — to extend the Emissions Trading Scheme to buildings and better align the Energy Taxation Directive with the carbon content of fuels — go ahead, the carbon price added to gas will rise, and with it, the cost of gas.

People surely won't like the increase in gas prices, but clearly this would make for a 'fairer' market-- I wonder if provisions can be written in at least that help make gas price increases less regressive & painful for the low-income homes. Could some of the funds raised go towards low-income energy assistance programs, for example?

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