Keeping future energy and water bills affordable

Following a workshop of New-Pin sponsors and supporters in October, Sustainability First has published the first of its major New-Pin policy papers, on long-term affordability.  Sharon Darcy, Sustainability First’s lead associate on the project, summarises the paper below.

Robust energy and water services are essential for individual and environmental health and vital for a strong economy.  Although a significant minority of people currently struggle to pay their bills, we all have an interest in ensuring bills are affordable, fair and acceptable – both for today and tomorrow.

In the coming decade, two thirds of the projected investments in the energy sector and nearly all of the projected investments in the water sector will be met through consumer bills.   At the same time, some are predicting that households in low-income groups may see their incomes decline.

Looking ahead, the energy sector faces a step change in costs as it seeks to cut its climate emissions and weather proof its services.  There is significant uncertainty around future wholesale costs, the price of carbon, and the effectiveness of energy efficiency measures that are designed to offset these. If this uncertainty leads to a delay in low carbon investments, risks and costs could increase, potentially making energy even less affordable for future generations.

In water, costs are likely to increase more incrementally and be driven by the need to adapt to both droughts and floods.  However, the ‘unprecedented’ weather of recent weeks is a sobering lesson that the future is not always the same as the past. Key uncertainties are around the scale of future sewerage costs and the quantity and quality of water resources.

When thinking about who should pay for future costs, there could be a logical fairness argument that long-term investments that primarily benefit future users should be met through ‘progressive’ taxation to pool risks and costs within and between generations.  However, in the current fiscal and political environment this may not be credible, except in the case of strategic investments of national importance or where Mayoral Authorities decide to pay for projects through business rates and local infrastructure funds.  This position clearly has distributional impacts.

The existing problems faced by energy and water consumers that struggle to pay are therefore unlikely to diminish in the future, and may actually increase.  A more holistic view of costs (including the costs of natural capital maintenance and repair) is needed if the full impacts of future affordability pressures are to be understood.  Energy and water companies are likely to continue to have a key role to play in managing this issue and will need to proactively develop strategies to identify groups that will struggle before they get into difficulty, working in partnership with third parties to develop and deliver targeted information, advice and support.

Consumers through their every day actions can help to reduce costs by using resources more efficiently.  However, the wider ranging and systemic risks and challenges that the energy and water sectors face will require a more coherent and joined-up approach to policy, regulation and service delivery in the future if long-term efficiency and affordability are to be maximised.

A clear vision and stable, predictable policy and regulatory frameworks on both the supply and demand sides will be needed to keep future costs as low as possible.  These should set out any trigger points for reviews in advance and also cover the future role of building and appliance standards and in-home communications infrastructures. Consideration will need to be given as to how to incentivise key actors such as developers to facilitate efficiency and resilience.

There is clearly an important role for competition in and for the market (eg auctions) to reduce long-term costs.  However, to release the potential of the demand side and facilitate technological and commercial innovation, it may also be helpful to take a fresh look at the respective contributions of competitive compared to collaborative approaches to managing long-term costs.  Re-shaping and / or integrating new markets comes at a cost if institutional inertia is to be overcome and market actors to be persuaded to form new partnerships and work outside their existing ‘vires.’  Recovering such institutional and transition costs on an ad-hoc basis could make it difficult for the energy sector in particular to evolve at the ‘right’ pace of change. A less atomised and more strategic approach to managing such costs may be needed.  The newly created National Infrastructure Commission could potentially provide a useful contribution here.

If future major investments are going to be primarily met by bill payers, it will be important to ensure that costs and profits are transparent.  Armed with comparative information on these points, consumers and public interest advocates will need to be engaged in decisions about prices and investments in a timely fashion so that change can take place in an acceptable and measured way.  Being clear who is making and accountable for decisions as to what should be paid for – along with who is bearing the long-term risks and accruing the long-term benefits – will be vital if the legitimacy of decisions and decision makers is to be maintained.

Good Reasons for Sceptics and Deniers to Support Renewables

A perspective from Sustainability First’s Chair of Trustees

The vast majority of the thousands of scientists around the world who have studied climate change confirm that man is by far the most likely culprit and that the problem has to be addressed as a matter of urgency. The 2015 Paris Climate Summit with around 200 nations represented also accepted this position, and the pressing nature of the threat.   Despite the now high level of agreement, there are still a number of sceptics and deniers who are often given airtime for views that often have little basis in scientific evidence.

However, there are good reasons to support a shift to renewable energy and cutting emissions, which should convince even the most contrary of the contrarians to support a new approach to energy supply. An economy based on renewables would herald wider changes, especially by giving communities more control.

A shift to renewables has a number of collateral benefits:

First, renewable energy not only produces fewer greenhouse gases, but is also far less polluting at local level. Smog in China and the levels of nitrous oxide and particulates in urban environments across Europe have recently been recognised as real threats to health. The simple fact of the matter is that burning of fossil fuels adds to the pollution of all environments to a greater or lesser extent and increasingly poses a real threat to human health.

Second, a switch to renewables also changes the whole nature of power distribution and depends upon much more localised production. This shifts us away from the top down grid system and gives power back (literally) to individuals, social enterprises and communities. This is especially important in developing countries and rural areas where power grids either do not exist or connection is prohibitively expensive. Renewables can actually become part of the local economy. It also engages people in their local environment and begins to reconnect them to natural processes which have been lost in much of our recent development.  A lot of the sceptics and deniers seem to disapprove of state intervention and support calls for a ‘smaller state’ – well here is their chance to commit to the devolution of power.

Third, renewables make us far less dependent upon large scale regional, national and international supply systems and provide us with a greater level of energy security. A large number of small community-based schemes feeding up into a grid are less susceptible than top-down schemes which are entirely dependent upon national and international economic and political change. It is of course also the case that some renewables are part of large-scale schemes and these should be welcomed too, but they will be part of a different mix of provision.

Fourthly, a disaggregated power system will spill over and create a wider community awareness and ownership of a range of environmental issues. This will help generate support for more localised systems of water storage and use, an interest in the production and disposal of waste, and greener transport systems. It may also lead to the development of localised energy storage which is still in its infancy but is rapidly developing. For example, the London Borough of Camden has recently commissioned solar battery-charging schemes, and both Tesla and Mercedes Benz have announced the sale of home battery storage systems.

The local potential of small-scale schemes and citizen involvement has been recognised by some cities at least. Bristol has established the Smart Energy City Collaboration to manage local energy supply and demand and enhance the value of heat and power generated in the city, particularly from variable sources like wind, solar and tidal.

The potential for renewables to reduce local pollution levels, improve energy security, change the whole system of supply and demand and improve local ownership of environmental issues – as well as tackle climate change – is huge. Even the climate change sceptics and deniers should be convinced!

Ted Cantle