Welcome to Rewire, a brand new publication to elucidate why costs are so excessive and the options that would convey them down. On this piece from our first version, we have a look at 5 key causes your payments are so excessive although renewables are getting cheaper.
1. Renewables are low-cost, however fuel units the worth for every little thing
In response to Ofgem, a few third of our electrical energy invoice comes from the wholesale worth. That worth is about each half-hour utilizing an public sale system. Numerous energy mills provide their electrical energy and the system takes the most cost effective presents first, then provides the costlier ones till there’s sufficient electrical energy for everybody.
However the final and costliest energy station that will get picked, normally an influence plant that burns pure fuel, units the worth for everybody.
The place we’re…and the place we need to be. Pictures: Stonehaven/Greenpeace
And since fuel costs have shot up, wholesale electrical energy costs have jumped too. That is the primary purpose your power payments are larger. Overhauling the market to cease gas-powered energy stations setting the wholesale worth might shave £5bn a 12 months off power payments by 2028.
2. The grid isn’t match for function — and fixing it should price billions
Almost 1 / 4 of our power invoice pertains to “community prices” — constructing or sustaining the cables and pipes that convey electrical energy or fuel into your property.
For twenty years after privatisation in 1990, these prices fell as a result of little or no cash wanted to be invested in upgrades. That has modified. The federal government is investing to develop the grid as a result of clear power is extra decentralised — photo voltaic and wind farms are extra unfold out.
Most wind farms are close to Scotland, however we do not have the cables to maneuver their electrical energy to the south, the place extra of it’s wanted. Beneath the present electrical energy market guidelines, these wind farms are paid to show off (or “curtailed”) if the grid can’t carry what they may generate — after which fuel mills nearer to demand are paid to generate the substitute electrical energy.
All the price of this “curtailment” and “balancing” goes on everybody’s payments and actually provides up. Wasted wind price £1.5bn final 12 months and will hit £10bn yearly by 2030.
3. Ministers are searching white elephants
The federal government is pouring some huge cash into tasks that make little sense – paid for by our payments. One large tranche of cash, £10 billion over this parliament, goes in the direction of growing carbon seize expertise — an experimental expertise that’s merely a present for oil and fuel firms. It’s like paying a (very unhealthy, very costly) cleaner to scoop canine mess from the carpet (leaving most of it behind), somewhat than coaching the canine to easily not mess the carpet.
The federal government has additionally allotted one other £2.5 billion in the direction of growing “hydrogen infrastructure” — one other experimental expertise that almost all specialists dismiss as too costly for properties and probably harmful. The funding for this funding will come from a levy on power payments. However our power payments shouldn’t be used to fund costly subsidies and experiments for the fossil gas trade and incumbents.
4. Utilizing power at quiet occasions ought to pay — however not everyone seems to be on board
Our electrical energy system was constructed to match provide with demand, so we would have liked the capability to sort out the heaviest intervals of demand. That approach it might be turned on when wanted.
Right now, Octopus offers reductions for individuals who use electrical energy when it’s low-cost and pays them to make use of much less when it’s costly, thus balancing demand and provide. This isn’t a sacrifice — it’s a discount, similar to particular presents in supermarkets, enabled by fashionable expertise and good meters.
Some folks attempt to place this as “rationing” nevertheless it’s the alternative: it’s a approach of bringing folks bargains through the use of electrical energy otherwise in the event that they need to. It’s similar to conventional Economic system 7 however rather more highly effective.
In power, we’ve historically been in a position to economize solely through the use of much less, whereas with meals, for instance, we are able to get monetary savings by shopping for otherwise — like switching grocery store manufacturers or snapping up seasonal presents. Electrical energy must be no totally different. Those that select the bargains make it cheaper for themselves — and for everybody else by lowering system prices. And it’s not a trouble: Octopus can optimise warmth pumps, batteries and EVs to make use of much less or extra electrical energy on the most cost-effective occasions.
In power, we’ve historically been in a position to economize solely through the use of much less, whereas with meals, for instance, we are able to get monetary savings by shopping for otherwise — like switching grocery store manufacturers or snapping up seasonal presents. Electrical energy must be no totally different. Those that select the bargains make it cheaper for themselves — and for everybody else by lowering system prices. And it’s not a trouble: Octopus can optimise warmth pumps, batteries and EVs to make use of much less or extra electrical energy on the most cost-effective occasions.
A extra versatile system stops the necessity for costly sources of electrical energy, reduces the necessity for very costly system upgrades, and reduces everybody’s prices. However lots of these working our grids and networks nonetheless haven’t received their heads round this expertise, and everybody’s payments are larger consequently. As a result of it’s uncharted territory, it’s exhausting to foretell precisely how a lot cash grid flexibility would lop off power payments, however specialists put the determine between £5bn and £10bn a 12 months.
Sensible concept
Prepared to economize and assist the world ditch fossil fuels sooner? Take a look at our good tariffs.
5. British era tasks are caught in a gridlock
The grid is in disaster, however that is made worse by extreme impasse and paralysis. Numerous builders are sitting and ready to construct tasks and join them to the grid.
At one level, the queue of tasks added as much as over 700 gigawatts — about ten occasions the UK’s complete put in capability. In 2023, Octopus produced a report into how the federal government might repair the gridlock. Lots of our suggestions have not too long ago been adopted however there’s way more to do. Sluggish progress in constructing new electrical energy tasks, whereas system operators are working outdated and creaky software program, makes grid congestion worse and raises all our payments.
There are areas the place we are able to’t construct new homes, factories, warehouses and information facilities due to an absence of grid and connections.
We consider the system operators and Ofgem have to do way more to hurry up connections to the grid, be clear on the place there’s capability to attach, allow different firms (like us!) to do it ourselves, and digitise operations to raised handle the system. That might assist to scale back prices for everybody.
Our ideas
We have now barely scratched the floor. The system wants reform, and Octopus plans to spotlight the necessity for it in Rewire. It’s important that we construct the lowest-cost power system doable. Low-cost renewables get us a good distance there however usually are not the entire reply. We have to construct extra era nearer to the place it’s used to keep away from actually costly transmission construct out, avoiding hundreds of km of pointless wires and pylons. And we must be utilizing each electron we are able to: on this power panorama, it’s insane to waste a single one.
In the event you’re struggling, we’re right here
Vitality costs are too excessive proper now, and that is not your fault. We’re doing every little thing we are able to to repair that – however for now, we all know many individuals want further assist.
In the event you’re frightened about maintaining on prime of your payments, our £40 million Octo Help fund is right here to assist. We provide bespoke assist together with free electrical blankets (we have given out 60,000 to this point to assist aged and medically susceptible clients preserve heat for much less), standing cost waivers and rather more.
You can even repair your costs under the worth cap to guard your self from will increase within the 12 months forward. Octopus stays the one giant provider that is all the time stored commonplace costs under the power worth cap.
Our crew is all the time right here to assist – if you wish to speak, simply get in contact.
