Domestic Energy Pricing Proposal

If we are all being encouraged to save energy how come the pricing model for most energy tariffs (gas and electricity) get cheaper as consumption increases? For example my gas bill from July - September 2008 shows the first 396 kWh at 7p with addition kWh at nearly half price (3.056p).

When you think about it the cost of electricity is fairly cheap. Even a big, plasma TV using 0.5kW is only costing about 30p an hour. It might cost £1 to cook dinner for four in an electric oven. By taking up all the available energy efficiency advice, low power light bulbs, eliminate stand-by, etc, the average household might stand to gain £200 a year - big deal!

Anyone looking at domestic renewable energy (solar PV, wind, heat pumps) soon realises that the economics are marginal with 10+ years payback. While large scale renewables are claiming close to parity with fossil fuels investment is unreliable (see recent announcements by EDF and E.ON regarding their commitment to wind power).

Therefore we need to price domestic energy from fossil fuel in a manner that;

• encourages efficiency
• makes small scale renewables cost effective (~5 year payback)
• does not punish those less able to pay
• does not punish those who are efficient in their use of energy

My proposal is that domestic energy should be priced in such a way that the price increases with usage. The energy regulators should have a key role in determining the quantity and base price, while the market would be free to establish the price of additional energy.

Those energy companies that offer a flat rate generally impose an annual fixed fee. These should be eliminated as they penalise low energy users. The energy companies will squeal about their fixed costs but they must be encouraged to recover these costs from high energy users and through energy efficiency services.

I believe this is a simple step that achieves all the goals set out above.

In addition this can be extended to replace the current fuel subsidies for low income and pensioner households. You simply need to increase the amount of energy they get at the lower rate or lower their base price.