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Could energy pricing structures drive energy efficiency?

Posted by Cathy Debenham on 11 February 2011 at 9:15 am

I've just listened to a discussion on Radio 4's Today programme about energy prices. At the moment they are structured so that the first X units are the most expensive, and after that, the price per kWh goes down. The argument was that this penalises people on low incomes.

Obviously, being Radio 4, there was someone there who argued against this point, but it seems pretty obvious (to me anyway) that there's a strong case here.

What wasn't mentioned is that the current pricing structure isn't doing anything to incentivise lower usage. Given the UK's carbon emissions targets, wouldn't it be a good idea to use price as a way of encouraging lower use?

If the first units were at a lower cost, then after a certain usage level the price went up, this would create more of an incentive to increase energy efficiency, both at home and in businesses.

What do you think?

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2 comments - read them below or add one


NorthGlosEPCComment left on: 1 January 2012 at 7:23 pm

I would certainly agree that the current generally applied pricing structure whereby energy gets cheaper per unit the more you use does not encourage either energy efficiency or reduction of consumption.

Usually the more expensive first block of energy is priced higher to compensate the supplier who might elect not to apply a standing charge. Of course whether there should be any standing charge at all is debateable.

Now making energy more expensive the more you use would indeed encourage economy of usage and efficiency but would also present problems or issues of fairness. Large family households will use more energy than a small single person household so at what level of consumption should prices start to increase? It would be a nightmare to try to apply rules to allow for this and make the system fair. Any such set of rules would be open to all kinds of abuse, and I can't see it working, not fairly anyway.

Perhaps a simple workable compromise would be to make it the rule that there is only one unit price whatever consumption level is, and no standing charges. That way at least those near fuel poverty level will not be paying proportionally any more than the high consumption user, as is the case currently. In addition we would also remove a system where high consumption is rewarded with lower price. It would be a nice idea to penalise high consumption with higher unit prices but the practicalities will make that very difficult to apply fairly.


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Martin Fodor

Martin FodorComment left on: 11 February 2011 at 5:28 pm

A basic, equal energy allowance per person at a starting price would be fairer, and could encourage some convergence of consumption towards a lower level than at present ... more units could then cost a higher price, unlike at present where greater use is made relatively cheaper thus stimulating demand.

However this means greater consumption would be easier for those with more money to spend.

And at present we have supplies metered by the dwelling not supplied to the person. One way to reduce demand is to encourage sharing homes....

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