Electricity is subject to additional taxes and costs, despite being a cleaner source of energy than gas. This is because electricity used to be mostly generated by fossil fuels. But electricity is increasingly being developed by clean, renewable sources and green energy solutions – such as heat pumps – run on electricity, so higher electricity costs can be a barrier to households considering a greener heating system.

The high price of electricity compared to gas – it used to be five times as expensive – is reduced under the Energy Price Guarantee. This is partly because the Guarantee removed Environmental and Social Obligation levies that added to electricity bills, but not gas bills, and moved these to general taxation. Nesta is calling for this change to continue once the Guarantee ends.

Nesta’s modelling shows that removing levies from electricity bills permanently can be part of a wider push to make electricity cost no more than 2.5 times the cost of gas - ‘the green ratio’. Nesta calculates this would make a heat pump cheaper than a more carbon emission-intensive gas boiler over its lifetime.

Madeleine Gabriel, Director of Sustainable Future at Nesta, said:

“Improving energy security should include making people more secure in their finances and their future. To make bills cheaper and greener, cutting electricity costs must be at the forefront of Government reforms.

“The threat of extra levies still hangs over people with higher electricity costs, despite electricity being greener than gas. The Energy Price Guarantee has temporarily kept this fossil fuel policy hangover at bay, but consumers deserve the certainty that electricity will be cheaper going forwards. It’s important that we don’t lose the green gains the UK has already made.

“The Government has an opportunity to go even further and aim for the ‘green ratio’ of electricity to gas costs at 2.5 to 1. This can be achieved by investing in renewables and reforming the UK energy market so that the price of electricity is no longer set by the price of gas. Making electricity cheaper can go hand in hand with reforms to help people who are struggling to afford high bills, through social tariffs and by varying standing charges by consumption.”

Notes to editors

1. Nesta calculated that with the Boiler Upgrade Scheme offering £5,000 grants towards the upfront cost of installing a heat pump, achieving a ratio of 2.5 to 1 between electricity and gas prices would see a heat pump in a medium home costing around £100 less per year over a 15-year lifetime than a gas boiler. This calculation takes into account all costs - upfront installation, energy costs and maintenance. When grants are no longer available, the 2.5 to 1 ratio would help heat pumps achieve cost parity with boilers over their lifetimes, if upfront costs were reduced by 20% and operating efficiency further improved.
2. For more information on the analysis or to speak to one of the experts involved, please contact Kieran Lowe, Media Manager, on 020 7438 2576 or [email protected]. Spokespeople are available for broadcast interviews.

About Nesta

We are Nesta, the UK's innovation agency for social good. We design, test and scale solutions to society's biggest problems. Our three missions are to give every child a fair start, help people live healthy lives, and create a sustainable future where the economy works for both people and the planet.

For over 20 years, we have worked to support, encourage and inspire innovation. We work in three roles: as an innovation partner working with frontline organisations to design and test new solutions, as a venture builder supporting new and early stage businesses, and as a system shaper creating the conditions for innovation.

Harnessing the rigour of science and the creativity of design, we work relentlessly to change millions of lives for the better. Find out more at nesta.org.uk