Britain needs to increase investment in its power sector four-fold over the next decade to deliver the crucial next step in decarbonising the economy.

However promises that electrifying our home heating and driving will lead to lower energy costs have relied on the pre-energy crisis low interest rates world returning, and we need a plan for paying for this investment in case interest rates stay at current high levels

That is according to a new report oiut today by the Resolution Foundation Think Tank which considers how to fund the major power sector upgrade needed to cope with rising demand for electricity in a decarbonising economy.

By 2040, Britain’s homes will consume 45 per cent more electricity than in 2025, while road transport electricity demand will increase thirteen-fold, as heat pumps and Electric Vehicles (EVs) become commonplace.

Costs, which are ultimately paid via household energy bills, of providing more renewable energy have fallen sharply over the past decade and this , coupled with forecasts made when interest rates were at historic lows, have led many to say this investment surge can be delivered alongside consumer savings

However with borrowing rates now at high levels  the cost of financing energy investment if today’s higher rates environment continues would be considerably more expensive, adding £29 billion a year to household energy bills in 2050.

These higher energy prices would fall disproportionately on lower income households. The poorest fifth could see their total energy spending rise by £700 per year – or 3.6 per cent as a share of income – in this high cost world.

Richer households would be less affected as the higher cost of domestic energy bills would be offset by savings from EV ownership, and their energy spending would rise by just 0.3 per cent.

Jonathan Marshall, Senior Economist at the Resolution Foundation, said:

“Britain needs to massively increase its electricity supply, and ensure it can be efficiently moved around the country, as we move towards a decarbonised economy of renewable energy, heat pumps and EVs.

“This will require tens of billions of pounds worth of investment each year – more over the next 15 years than insulating homes or buying electric cars. Cleaner energy could be cheaper energy, if interest rates return to the low levels seen during the 2010s.

“But we can’t count on that being the case. If interest rates stay high, energy costs will rise rather than fall in the years ahead. So now is the time for planning on how we deliver the energy investment surge while protecting lower income households, with a greater focus on price reduction in contracts, price protection for vulnerable households, and rethinking the role of the state as an investor.”


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