Is the market racing?

Tuesday, March 29, 2022 8:15 a.m.

Since the energy crisis erupted last year, causing dozens of suppliers to collapse at the direct expense of millions of UK households, attention has mainly focused on what the Chancellor can do to further support people in difficult market conditions.

With Rishi Sunak dipping into the pockets of taxpayers for expensive furlough schemes and welcome gifts in recent years, it was no surprise to see him announce a £9billion reimbursement scheme following the painful 54% spike in Ofgem’s consumer price cap – which will see energy bills rise to nearly £2,000 a year from April.

He even revealed to the Treasury Committee today that he could intervene more this fall – with analysts expecting another big hike in the price cap in October.

In his spring statement last week, however, Sunak appeared for the first time to focus on how consumers could potentially lower their energy bills through investment choices to make their energy use more efficient. .

This included reducing the rate of VAT to 5% on home renovations, including solar panels, with homeowners potentially benefiting from tax savings of up to £1,000 a year and a possible reduction of £300 on their energy bills.

Solar power lags behind wind and natural gas in terms of the country’s energy mix, but has seen steady growth over the past decade, both industrially and in the consumer market.

There are now around a million homes fitted with solar panels – while solar power also accounts for around 6% of the UK’s energy mix with over 500 farms dotted across the UK.

This has coincided with a drop in the price of solar panels, with MoneySavingExpert.com revealing that the cost of a standard 3.5 kilowatt system (which would cover 25 to 30 square meters of a domestic roof) has risen from more than 6,000 £ eight years ago to less than £5,000 today.

He now predicts that the break-even price for a standard configuration of solar panels is around nine years.

Analysts skeptical of benefits for low-income households

Steve Buckley, head of data science at Loop, said; “Solar power was already a great option for households looking to reduce their carbon emissions: a typical installation reduces emissions related to energy consumption by around 1.6 tonnes per year.

David Bird, Octopus Renewables Infrastructure Trust Investment Director, said AM City if the latest measures are “welcome”, the VAT cuts will probably not benefit the households that need them the most.

He said: “If you are able to invest in solar panels and have the right type of property, then you can clearly save on your regular bills through home solar energy consumption. But the people who will be hit hardest by price increases are probably not the kind of people who can just afford to go out and buy solar panels and put them on their roofs. “

The chief investment officer also noted that people living in apartments or towers in high-density housing areas will not have rooftop space for solar panels.

This perspective was widely shared by energy analyst Andy Mayer of the Institute of Economic Affairs, who argued that with prices as high as they are, the VAT cut was unlikely to do a significant dent in rising costs.

He said AM City.: “The main beneficiaries will be those with bigger homes and budgets who can well afford five percent. Many will question the political wisdom of raising VAT on servers so their customers can enjoy pumps. discounted heat for their vacation homes.

Justina Miltienyte, energy policy expert at Uswitch.com, had a more optimistic view of the potential benefits of solar power installations under current funding arrangements.

The analyst acknowledged that while solar panels won’t insulate consumers from sharp energy price hikes this winter, they could “future-proof” homes and make them less dependent on market behavior and energy prices. ‘electricity.

She said: “If you can afford the upfront cost, it’s certainly worth considering taking advantage of the VAT reduction and installing solar panels. More needs to be done to ensure that everyone can benefit from these technologies, not just those who can afford the upfront costs.

With the VAT cut unlikely to offset household bills or attract low-income households, the chance of solar panels easing cost-of-living pressures this winter is slim.

However, growing investment incentives and falling prices indicate the role the power source could play in ensuring that the energy supply is more secure and homes are more efficient in the future.

This could ensure household resilience to future market shocks.