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#nomoregas 2. Energy prices

If you have read our first post on the #nomoregas campaign, you will know we are trying to establish (and possibly expand) the opportunities to disconnect homes and flats from the gas supply. we are investing in this research-campaign for environmental and geopolitical reasons. The final product will be a free guide that should help interested homeowners and designers make informed decisions: will switching away from gas make sense environmentally and financially? What are the best solutions out there?

For those who are too busy to read the entire 5-minute-long first post, here is a recap:

1. It already makes sense to transition to fully electric heating and hot water engines in every new building. the best solution in most cases will be heat pumps.

2. We will look at the most challenging case studies: single-family houses or flats built before the 1920s, with solid external walls (as opposed to cavity walls).

3. Using comparative data from The Carbon Trust (the Carbon Trust 2020), we have identified the costs of retrofitting heat pumps in several case studies. Based on the first survey of the data, and in light of changes in the cost of gas, our intuition is

a. In large refurbishment projects, once a small portion of the retrofit cost is absorbed in the general scope works, heat pumps always make financial sense. For these cases, we want to establish the minimum requirements for efficiently installing a heat pump. We also want to establish best practices. For example, where should we invest in retrofitting? What are the best methods? Etc

b. Heat pumps will be too impractical and expensive to retrofit in small properties. For three cases we hope to find technological and design solutions that might ease the transition to gas-free homes.

3a and especially 3b above are the two hypotheses we’d like to test. In the conclusions to the first post, we also laid out our plan of action:

1 get in touch with Carbon Trust to request data and offer our collaboration. We have reached out to the Carbon Trust, which cannot help us at the moment. So we will just need to crunch the numbers ourselves.

Second, we asked people to introduce us to experts who can help, which provided us with three precious contacts.

We have had one conversation, which has outlined how things are more complicated than we thought, and therefore enriched and stirred our research. Once we complete the first round of conversations, we will summarise our conclusions in another post.

This post will be instead dedicated to a potentially fatal flaw of our research and campaign - and to why we think it is not a problem.

The not-for-too-long problem

Historically, directly supplied natural gas has been a lot cheaper than electricity: this is why gas boilers are still the standard energy engine in most homes. And this is why simply switching to electric boilers was considered wasteful. Instead we need something as miraculous as a heat pump or as effective and expensive as insulation to make electricity competitive.

But. One of the founding principles of our campaign is that the price of gas is skyrocketing while renewables are getting cheaper every second. We thought that the cheaper renewables combined with the much more expensive gas price due to the war in Ukraine would level the playing field. When electricity and gas reach a similar price (hopefully because electricity becomes cheaper), several electrical products that today are considered too wasteful or expensive suddenly become competitive.

So we were amazed to see that electricity prices had increased together with gas prices and more, compared to when the Carbon Trust’s report was drafted!

The report stated:

For domestic customers, we assumed a standard gas tariff of £0.032 per kWh and a standard electricity tariff of £0.152 per kWh, in line with the Treasury Green Book Central Domestic rates. I.e. our electricity standard tariff is assumed to be 4.75 times the cost of gas per kWh

The prices have more than doubled, with a gas kWh now costing about £0.075 and electricity increasing from £0.152 kWh to 0.29 kWh. The result is an even more dramatic difference between the two sources[1]

Gas and electricity prices are in effect tied in a coupling mechanism, by which the price of gas determines the cost of electricity, also the electricity produced by renewables! The reason for the coupling made sense some time ago, but the mechanism is now causing distortions and undermining the growth of renewables (as well as part of the foundations of our research).

Europe has a similar energy pricing system, but also a more diverse legal landscape. For example, Being less integrated into the continental energy network and much more reliant on renewables,

The UK is in a similar condition: it is not integrated into the European energy networks, doesn’t import gas from Russia, and has a solid renewable supply. Hence, we think we should expect the gap between electricity and gas prices to drop and eventually disappear in the coming few years.

The current price increases have put so many people under fuel stress that the government is considering reforming the market as soon as this year (2022); other institutionas are pushing for more complex and localised models for energy pricing. If we take advantage of the renewable energy we generate, perhaps by adjusting to a less consistent supply, the #nomoregas campaign will have a much easier life.

So this is something to hope for and perhaps lobby for: a reform of the energy market that reduces energy bills by decoupling gas and electricity prices while maintaining incentives for installing and consuming renewables.

Of course, we cannot rely on government legislation to start a revolution . But we can assume that at some point, the cost of grid-scale renewables will be so low and their use so predominant that electricity will cost less than gas. In fact, as of last year, the cost of installing renewables and energy storage combined has become way less than building new gas plants. TransitionZero, among our heroes, have mapped the cost tracked and all the prices in hypnotising animated graphs (the screenshot below does no justice to their beauty in movement).

Finally, using data from the electric grid's forecast, the Carbon Trust’s report calculates that by 2025 direct electric heating will be more carbon-efficient than gas boilers, thanks to the accelerating decarbonisation of the grid. We can only hope that TransitionZero’s data and the current energy crisis will accelerate the trends described in this post. For the moment, we are satisfied with the conclusion that within three-four years, direct electricity will be more carbon-efficient and may be cheaper than natural gas. Does this mean that direct electricity energy engines will be competitive with gas in the near future?

Source: The Carbon Trust, GLA, 2020. Page 3
Carbon intensity of gas boilers [,direct heating,] and heat pumps at different efficiencies: 2010-2050 (The Carbon Trust, 2020)


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