Poorly insulated homes to cost £1,000 more to heat this year than if they had been upgraded to meet Government’s target

With the new price cap and Energy Price Guarantee now in force, the cost of gas for homes with worse insulation, rated band F on the Energy Performance Certificate (EPC) scale, will be on average £1,000 a year more than homes at the Government’s target of EPC band C. These households will pay over £550 on their bills and the Government around £450 via the price freeze, according to new analysis by the Energy and Climate Intelligence Unit. [1]

And with the gas crisis also inflating power prices, when gas and electricity are taken together, the worst rated homes will cost around £1,750 more than EPC band C homes – £950 on household bills, and £800 from the Government.

Total energy costs for these low efficiency band F homes are set to be almost £5,500 over the next 12months, four times the level in summer 2021 before the gas crisis. [2] These households, that tend to be on lower incomes, are facing bills of £3,000, which is well above the £2,500 for typical households under the price freeze. In addition, Government support for band F homes will cost over £2,400 a year – £800 more than if they had been upgraded to band C.

Whilst households living with the worst energy efficiency are facing the highest bills, even those in average band D homes are facing bills of £370 more than if they had been upgraded to the Government’s target of band C – plus the Government is set to pay £310 more, taking the total extra cost to £680 for the year for average homes.

Previous ECIU analysis based on earlier price forecasts found that insulation installed in some homes now would provide payback for Treasury by around the time of the next election based on price forecasts from August 2022 [3]. Even if recent welcome reductions in forecast prices turn out to be correct, Treasury and the household would be saving over £1,000 between them by the election, and the households would continue saving each year thereafter.

Simon Cran-McGreehin, Head of Analysis at ECIU, said: “With the Energy Price Guarantee set to last for at least two years, unless these homes get some badly needed insulation in the next few months, both bill payers and taxpayers will be on the hook for a lot of expensive, wasted gas.

“The IMF has pointed out that as a country we are much more dependent on gas and so being hit harder than other European countries by the crisis. More UK gas won’t bring down prices that are largely set by an international market. The Government has announced an increase to the successful ECO energy efficiency scheme, but that came a full 12 months into this crisis.”

Had the Government maintained support for insulation after 2012, 10million homes could have been upgraded by now, cutting their gas use by 15-20%, and cutting overall gas demand from homes by 10% – which would have saved hundreds of pounds per home, allowing the Government to amend the price freeze to reduce household bills and/or the cost to taxpayers. [4]

The Government recently decided to go ahead with doubling the ECO (Energy Company Obligation) scheme, which was a proposal developed by the energy industry [5]. Previous ECIU analysis has shown that energy efficiency schemes such as ECO have contributed to savings of £1.2bn per year under prices this past summer, which will have risen further under higher winter prices. [6]. A recent industry survey by Gemserv showed that 80% installers say they have capacity to take on 25-50% more work, and 96% expect job creation from an enlarged ECO ‘Plus’ scheme. [7]

Analysis has also found that deploying heat pumps and insulation is the fastest and most effective way to permanently reduce gas demand, gas imports and heating bills – as opposed to drilling for more UK gas which would not cut demand for gas or the price. [8]