How Renewable Energy Can Help Address Fuel Poverty Now and In the Future?

The UK government has big plans to decarbonise the electricity system by tripling solar capacity by the end of the decade. Although this will be mostly driven by large-scale installations, government ministers are also hoping for a “rooftop revolution” that could see millions more homes topped with solar panels by 2030. Solar panels not only provide carbon free electricity but can also significantly reduce energy spending for domestic households that have them. 

The Resolution Foundation has produced a report that assesses government support for solar panel adoption particularly considering their plan to triple solar capacity. The Resolution Foundation is an independent think tank and charity that works to improve the lives of people on low to middle incomes.

They do this by conducting research and analysis to develop policy proposals. 

The report suggests that fuel poverty could be tackled if the government subsidised the installation of solar panels. The recommendation is that installing rooftop solar panels could cut energy bills for families with a 3KW solar panel system for example, by up to £440 per year and take 1.2 million people out of fuel poverty. Not only could families reduce their energy bills by 24% but the UK’s electricity system could be further decarbonised. This makes rooftop solar a cost-effective way to reduce household expenses. Policy makers should be looking at rooftop solar as well as other ways of permanently reducing household energy spending such as improving insulation. The installation of solar panels compares well with other bill-cutting measures, yielding a 7p-a-year per pound spent which is a third more than cavity-wall insulation. 

Fuel-poor families are defined as those who spend more than one-tenth of their disposable income on fuel bills. There are 3.6 million families currently in the UK in this category. 

Notably, when solar panels were highly subsidised with the Feed-in tariff (FiT) more solar panels were installed in poorer areas than richer ones. The Feed-in Tariff (FiT) was a UK government scheme that ran from 2010 to 2019. It encouraged households and businesses to generate renewable energy, such as solar and wind power. Energy suppliers paid households and businesses for renewable electricity that was generated and exported to the grid. The feed-in tariff was closed to new applicants on 1st April 2019. The Smart Export Guarantee (SEG) was introduced in January 2020 as a replacement but was not nearly as lucrative. The SEG is a scheme that guarantees payment for exported renewable energy, ensuring that people generating their own electricity are compensated for the excess energy they feed back into the grid. 

According to the Resolution Foundation thinktank, the upfront cost of installing rooftop solar panels is often prohibitive for those who would benefit most from reduced energy bills. With a 3KW solar panel system costing around £3,000 to £5,500, solar PV will be out of reach for many low-income households who often have less than £1,000 in savings. Just 8% of UK households have solar panels due to the high upfront costs. Since the Feed-In tariff came to an end solar panel installations have tended to be concentrated in wealthier areas. Without intervention this will not change and those who would most benefit from the adoption of solar will continue to struggle.

The economists behind the research have asked the government to look at offering means tested grants or loans or low-cost financing options. to cover these costs and to ensure poorer households are given a fair price for any surplus energy they produce that is then sold back to the grid. 

Zachary Leather, an economist at the Resolution Foundation, said: 

“Rooftop solar panels can cut poor households’ energy bills by around a quarter and their returns compare well with other bill-cutting measures. But despite this win-win scenario, too few families, particularly in poorer areas, are getting them installed. The government should include a new means-tested support scheme for solar panels in the upcoming warm homes plan. This could really get the ‘rooftop revolution’ up and running and ensure that the consumer benefits from this net zero transition aren’t just hogged by richer households.”

Not long after the Resolution foundation produced its report the Climate Change Committee (CCC) published its Seventh Carbon Budget which recommends that the UK should reduce its emissions by 87% on 1990 levels, by 2038-42. To achieve this a new era of climate policy is required where changes to families’ spending patterns will play a vital role. This will happen primarily due to families switching from petrol cars and gas boilers to electric vehicles and heat pumps. These two technologies alone account for 41% of the emissions reductions required between now and 2040. 

Of course there will be upfront costs, particularly for heat pumps which the CCC now believes will still be more expensive than gas boilers by 2050. Electric cars are also more expensive than petrol cars currently, but they have fallen in price and are expected to continue to do so. Governments face a major challenge between now and 2050 as to how to change household behaviour so that both the upfront costs and the ongoing savings are shared fairly. 

The CCC believes that there will be benefits as we move to net zero that will eventually outweigh the costs. In fact, its estimates suggest that, from 2026, net zero should show up as a net positive on average household expenses. This is particularly evident in the transport sector. Five years ago, the CCC estimated that the UK would spend an additional £8 billion a year on buying cars and vans by 2030 because electric vehicles are more expensive than petrol and diesel cars. However, costs have come down faster than expected and the CCC now estimates that electric vehicles will soon be cheaper to buy than petrol cars largely due to the fall in the cost of batteries. The CCC now predicts that households will save an aggregate £3 billion a year on the cost of buying new cars by 2030, as well as the £6 billion a year households will save on cheaper electric driving (i.e. using electricity rather than petrol), all in today’s prices. 

Further to that, the CCC also thinks that by 2030, households will be spending £6 billion less on energy bills in today’s prices, as cheaper renewables bring down the cost of electricity, and efficient heat pumps bring down heating bills. Households could enjoy average savings of around £1,080 a year (in today’s prices) in the future from lower electricity prices, cheaper cars and driving and cheaper heating from efficient heat pumps by 2050. 

However, initially there is a high price to pay for these future savings. The CCC estimates that households will need to fund an extra £147 billion in today’s prices worth of home upgrades during the 2030s, mostly in additional costs for heat pumps over gas boilers. The government had hoped that the cost of buying and installing a heat pump would reach parity with a gas boiler sooner, but the cost of these heating systems have remained doggedly high. Unfortunately, the CCC thinks that even in 2050 buying heat pumps will likely cost three times as much as a gas boiler is today. Though they will be cheaper to run it won’t be enough to make up for the high upfront costs. This is a major challenge for today’s government and future governments as how do you persuade people to switch to a more expensive system of heating? For low-income households it will be virtually impossible without help as they may struggle to find enough for a new gas boiler let alone a heat pump system. 

The big winners from the transition to net zero will be car owning households. The richest fifth of households account for 58% of spending on new cars as well as driving twice as far as low-income households. A typical car user can benefit enormously while a household without a car may see no savings at all. Some car owners will also live in bigger houses than those who are on low incomes and benefit from lower energy bills too though they may have incurred greater upfront costs. 

The challenge will be the subject of forthcoming Resolution Foundation research.