London, U.K. — (METERING.COM) — July 7, 2008 – A full rollout of smart metering by 2020 and consistent and sustainable behavioral change by consumers to embrace the challenge of reducing their energy consumption are among the measures necessary in meeting the 2020 carbon emission targets.
In addition there is a need to better communicate to domestic consumers the need for energy efficiency initiatives, or else more compliance-based measures will be necessary.
These are among the findings of a new report by Ernst & Young, "Costing the earth?", which finds that consumer energy bills in the U.K. will rise by at least 20 percent, and probably much more, to pay for the cost of meeting the low carbon agenda. This equates to an increase in annual domestic energy bills in 2020 of £5.3 billion (US$10.4 billion), or an average £213 (US$420) per household.
Components include the cost of the smart meter rollout and obligations on energy suppliers to reduce household carbon emissions, which is expected to add 6.5 percent to consumer bills by 2020. Other components are the additional cost of financial support for renewables (6.8 percent), changes to the generation mix with the addition of low carbon capacity (3.5 percent), additional investment in networks to ensure continued security of supply (1.8 percent) and other items such as value added tax (1.9 percent).
However, consumers do not yet appear to appreciate the inevitability of domestic energy bills rising to meet these commitments, with a survey of over 2,000 adults undertaken in May 2008 finding that only 4 percent agreed with the statement “My home energy bill needs to rise to help combat climate change”.
Nevertheless just over two-thirds of respondents did feel that they should be responsible for reducing the amount of energy used in their homes, and 50 percent agreed they would be willing to reduce their energy consumption if their energy bill were to increase by £200 ($395) or more over a year.
According to the report this increase in consumer bills will reflect a structural change in the cost base of the UK’s energy supply industry that is independent of any commodity price rises for energy, which will themselves make the total increase in bills even higher. Any rise in bills will add to the number of those falling within the government’s definition of fuel poverty. Moreover, any investments made by households to capture energy efficiencies would represent a further expense.
The report notes that energy retail competition will continue to be driven by price. Opportunities to differentiate may come through deepening relationships with customers based upon the insights from smart metering, and offering new energy service propositions to help customers improve their energy efficiency and mitigate the impact of their discretionary spend on energy efficiency measures.
The UK’s emissions reduction target is a 26 percent cut in carbon emissions by 2020 from the 1990 level, while under the European Union’s proposed Renewable Energy Directive 15 percent of energy supply (i.e., transport, heat and electricity) must be met from renewable sources by 2020.