Governance for Affordable Energy: What is the impact of demand-side governance on affordability of energy for domestic consumers in Great Britain?

Abstract

Affordability of energy in the domestic sector is the product of three interrelated factors - level of household income, level of energy bills (which are a product of prices and levels of energy demand, mediated by tariffs and the retail market), and the amount of energy that a household needs to maintain a healthy living environment. This thesis focusses on the factors of affordability which are most relevant to the energy policy which are energy bills and energy efficiency, both of which are considered in the context of household income. Affordability of energy in Great Britain is important for separate, but over-lapping reasons. Firstly, it has important political impacts - as energy prices continue to rise, energy is repeatedly highlighted as one of the biggest financial concerns for households (uSwitch, 2013; YouGov, 2015; DECC, 2014f), leading affordability of energy to become an increasingly political issue (Lockwood, 2016). Secondly, affordability of energy has social implications which stem from the fact that the impact of rising energy bills is felt particularly strongly by those on low incomes and in inefficient homes – the fuel poor. In spite of it being twenty-five years since Brenda Boardman published her first book defining the issue of fuel poverty (Boardman, 1991), millions of households in Great Britain today still cannot afford adequate amounts of energy. This is significant because being able to afford access to basic levels of energy services such as warmth and light is essential for maintaining physical and mental health (Harrington et al., 2005; Stockton and Campbell, 2011). Thirdly, affordability has important implications for design of the energy system –a system focussed on minimising long-term costs, both through micro-scale features such as efficient network revenue regulation which keep costs down on a year-by-year basis, and macro-scale aspects such as through the development of a low-demand, highly flexible energy system which has the potential to bring costs down in the long term (Sanders et al., 2016), is likely to differ from one which in which affordability is less of a focus, or only a focus over the short term. This thesis responds to a gap in the literature in relation to the role that governance plays in affecting levels of affordability of energy for domestic consumers in Great Britain. It examines the impact of governance on energy prices and tariffs, and the impact of governance on energy efficiency of the housing stock in Great Britain. Both of these are examined in the context of levels of household income. Greater insight is gained by examining the impact of the energy governance structure in Denmark on Danish domestic energy efficiency standards, which are widely accepted to be very good (IEA, 2011). 7 This thesis makes use of existing academic and policy literature in tandem with data from fifty-six interviews with individuals from across the energy sectors in Great Britain and Denmark. The governance structure of energy in Great Britain is shown to be, on balance, not supportive of delivering affordable energy to domestic consumers. A number of specific issues within the current governance structure in Great Britain are identified. These include the presence of a limiting narrative, whereby policymakers consider affordability to be achieved principally through delivery of low prices; insufficient institutional capacity within OFGEM to keep network prices low, and monitor suppliers’ costs and profits; lack of wholesale market transparency; an anti-interventionist ideology leading to weak energy efficiency requirements for new-build and private rental properties; suppliers as poor executors of energy efficiency policy; weak demand-side interests; tariffs designed around the needs of suppliers, not consumers; an over-reliance on an uncompetitive retail market; a lack of institutional capacity amongst policy makers regarding energy efficiency, and network regulation; and weak consumer representation. A number of recommendations are put forward, including the fostering of a new narrative centred on energy efficiency; the redesign of tariffs to better protect the interests of consumers; the reallocation of responsibility for energy efficiency to local authorities; the development of greater institutional capacity among policymakers; the support for a more interventionist ideology supporting use of regulation; financial support for energy efficiency retrofit; the fostering of greater policy stability; development of new tariff structures; and the formation of a new consumer representative. Overall this thesis demonstrates that affordability of energy in unlikely to be delivered to domestic consumers in Great Britain unless significant changes are made to the governance structure of the energy sector.