(Bloomberg) — The winter heating season is looming and finances remain strained, but UK homes are getting the chance to cut energy bills — or even pay nothing at all — by effectively becoming mini power plants.
Households with solar panels, heat pumps and batteries can store power produced when prices are low and then sell to the grid when they’re high. Versions of these flexible tariffs have been around for a while, but suppliers are trying to increase subscribers and major provider Octopus Energy Ltd. is taking that further by rolling out a version guaranteeing zero bills.
It’s an appealing deal for inflation-hit consumers and can help Britain meet its green targets, but expanding it on a large scale will be challenging. Octopus’s zero-bills offering is focused on new homes built with the right sustainable tech and involves the company taking on some risk when it comes to market prices and the weather. The other option — upgrading millions of drafty, inefficient properties heated by gas — will be difficult and costly.
Paying less would bring relief for customers at a time when typical energy bills at the start of winter will be more than 80% higher than in 2020. There’s also a need to make backup supply and usage more flexible to tackle intermittent renewables output and meet rising demand to charge electric vehicles and run heat pumps.
“These smart export tariffs are an important step in engaging customers in their own energy use,” said Tom Goswell, head of consumer markets at consultancy Cornwall Insight. “The main issue is aging housing stock, and energy efficiency is a low-hanging fruit that we should be investing in.”
Almost half of Britain’s energy consumption is for heating, and refurbishing poorly insulated homes is crucial for hitting a government target of net-zero emissions by 2050. Yet slow investment has fueled calls for the state to improve funding.
Octopus began piloting its zero-bills program last year and aims to expand it to 10,000 households by 2025. It’s partnering with homebuilders including Verto to equip new and existing properties with green-energy technology for the plan that ensures customers pay no energy bills.
It could leave Octopus exposed, however. For example, if wholesale prices spike or there’s not enough sun shining on solar panels, the company could end up supplying electricity at a loss.
Smart Payments
Other companies also have plans where households can benefit from sending excess energy back to the grid. Good Energy Ltd. is one, for tech installed in existing homes. Its customers have created a decentralized energy network, bringing “180,000 micro-sized power stations into the grid,” Chief Executive Officer Nigel Pocklington said.
Still, refitting homes with green-energy tech can require hefty investment, even with government aid.
A common 4-kilowatt roof solar system costs around £6,000 ($7,500) and it could take as many as eight years for buyers to recoup their outlay, according to GreenMatch. An air source heat pump can set households back between £8,000 and £18,000.
“There are people who are interested in a cost saving return on investment element, but at the moment you do need a lot of money up front to have that benefit,” Pocklington said.
Britain will need more flexible forms of clean energy to curb the use of dirty power plants like natural gas. Peak demand from charging EVs and running heat pumps alone in 2040 may reach as much as 26.5 gigawatts, National Grid Plc has estimated. That’s more than peak demand of all households last year.
The way things are going, higher consumption at peak times means that the equivalent of four new gas-fired stations will be needed to meet this extra demand by 2030, Cornwall Insight says. But shifting demand to cheaper times has the potential to save consumers and the energy system £14 billion annually in 2040, it said.
“Behaviour and habit change by consumers is an important part of the transition to net zero,” said Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit.
–With assistance from Todd Gillespie.
©2023 Bloomberg L.P.
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