Is your heating costing the Earth?
In this article, Russell from Juno Renewables explores the ongoing pressure of energy prices in the UK, looking at why costs have risen, what influences the way we are charged, and how homeowners can better understand their energy use. He also considers the role of heat pumps and renewable technology as households look for more efficient, future-focused ways to manage rising bills.
“Many principled, courageous and defiant people that like to glue themselves to things say that is exactly what it is costing. While I jokingly refer to renewables as vegetarian heating, I actually believe in the green argument, although that is not what’s on the agenda today. Today we are looking at cost, but not the nuanced, controversial, politically correct planet saving type. Moreover, the very real immediate, “where is all my money going?” type of cost. Your heating and cooling costs are a big part of that so lets talk Heat pumps.
The secret to a Heat pump is the seasonal coefficient of performance figure (SCOP). This SCOP is the multiplier that gives a Heat pumps its efficiency and while a well-designed system can return A SCOP of up to 6 in a very well insulated thermal efficient building 3 to 4 is more likely for a retro fit.
So 1kW in equals 4kW out. Even with all that efficiency the unit cost of electricity is disproportionate to its generation and is masking that fantastic multiplier.
Lets take a look at why our energy bills are so high in the UK. But firstly, just think about this: Imagine a group of people go out to dinner. Everyone orders different meals ranging from a £5 salad to a £40 steak. When the bill arrives, the restaurant charges everyone £40 for their meal because the steak was the most expensive item required to satisfy the table.That is how we are billed for our electricity in the UK under watts known as the “Marginal pricing system”. Under this system, the wholesale price for all electricity generated during a specific period is determined by the cost of the very last, most expensive generation unit needed to meet demand.
Renewable energy sources like wind, solar and nuclear have near zero fuel costs. They sit at the bottom of the stack and are always used first when available. If renewables and nuclear cannot meet 100% of the UK’s electricity demand at that moment, the grid has to call on more expensive, flexible fossil fuel plants. Typically, gas turbines. The last generator called upon to successfully meet the final sliver of demand is the “marginal generator.” And it’s the final generator sets the price for producing power in that period.
While there is slightly more going on than my simple explanation, mechanisms and incentives to encourage re-investment in green sources and the like. There is no escaping the fundamental flaw of the marginal pricing model. This becomes all too apparent during global energy supply shocks. Because the UK still relies on gas to fill gaps when the wind isn’t blowing or the sun isn’t shining, wholesale electricity prices track the price of global gas. Even if the UK generates 70% of its power from cheap domestic wind on a given day, if the remaining 30% must come from gas, the skyrocketing price of international gas dictates the cost of all electricity.
This phenomenon is what drove extreme volatility in household energy bills during recent geopolitical conflicts, forcing the government to introduce price caps. Historically, gas and oil prices were joined at the hip, and although the nature of that link has fundamentally changed over the last few decades. They are often still pulled in the same direction by global economics and geopolitics. Which of course, ultimately means a price increase either way.
On the bright side, as the price of Natural gas, Liquid petroleum gas and Kerosene heating oil increases, our magic SCOP multiplier really starts to do its thing. While electricity costs are, arguably — still higher than they should be, the payback period vs capital investment is surely shrinking.
So this time it’s the Oil from the Middle east rather than the Gas from the Russian Arctic. Either way I ordered a Salad and got charged for a Steak! Maybe a Heat pump can help. With an increased Government Grant of £9,000 available why wait
