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Cost of living: why some countries have lower energy bills than the UK | Economic news

Millions of households in the UK are facing an unprecedented £700-a-year rise in their energy bills after the price cap rose by 54% in April.

Another big increase is scheduled for october.

But in some other countries, households pay much less for heating their homes.

Where are energy bills lowest?

Canada and Norway have the lowest household electricity prices among OECD countries with at least five million people, according to the Australian Energy Council.

Both countries are dominated by hydroelectric power stations, a renewable source of energy.

Canada derives most of its electricity from hydro (60%), followed by nuclear (13.5%) and gas-fired (11.26%).

Norway obtains almost all of its needs from hydraulic sources (about 93%).

In other countries that rely heavily on hydroelectricity – Costa Rica, Switzerland, Austria and Sweden – consumers also pay less.

Canada has another advantage: it has its own gas supply to draw on, giving it more control over prices.

This is also the case in Israel, which relies mainly on gas (65%), followed by coal (29%) and solar (6%). The situation is similar in the United States, where natural gas accounts for 38% of the country’s electricity. Coal represents 31%, nuclear 19%, wind 9%, solar 4% and hydropower 6%.

In South Korea, low taxation and government regulation have played a key role in limiting electricity prices despite gas import costs, the second source at 29%. Coal provides 35%.

The impact of gas and nuclear

Unlike most of these countries, the UK is forced to import large quantities of gas, which is its biggest source of electricity.

Gas represents 40.1%, followed by wind (21.1%), nuclear (15.3%), biomass and other renewable energies (12.8%), solar (4.1 %), oil (2.8%), hydroelectricity (1.8%) and coal (2%).

Luke Murphy, associate director for energy and climate at think tank IPPR, says the higher the proportion of gas, the higher the costs are likely to be.

Of the 31 OECD countries above, the UK ranks sixth for its reliance on gas.

“If we had had a greater proportion of renewables in our energy mix, there is no doubt that consumers would have lower bills,” Mr Murphy told Sky News.

He says increased investment in nuclear power ‘is not going to bring down bills anytime soon’, referring to the UK government’s proposal to build eight other nuclear reactors.

“Nuclear energy is actually one of the most expensive sources of energy,” he says. “Nuclear projects in the UK have been beset by delays and cost overruns.”

“A greater focus on onshore wind, for example, would help bring down bills much faster, because it takes much less time to get onshore wind up and running than a nuclear plant,” adds- he.

The role of renewable energies

Jonathan Marshall, senior economist at the Resolution Foundation think tank, agrees, saying there is greater potential for increasing the use of wind and solar energy to reduce wholesale costs.

He tells Sky News that the UK’s geography, which has fewer lakes and mountains than other countries, makes it less suitable for very large-scale hydropower.

But there is some “room for growth”, he says, in the use of pumped hydropower – which is already generated through the use of large reservoirs in Scotland and Wales.

Mr Marshall says the government has restricted the development of onshore wind farms, favoring offshore wind instead.

Ministers expressed concerns that onshore wind will be unpopular with the public – but Mr. Marshall says “there isn’t really any evidence for that”.

“Lots and lots of polls show that people like wind turbines pretty well,” he says.

Offshore turbines benefit from greater amounts of wind and fewer restrictions on their size, which translates to greater power generation, he says.

However, offshore wind is significantly more expensive than onshore wind and takes longer to build, according to the National Grid.

In its energy strategy, the government said it would consider developing more onshore wind infrastructure, but declined to change planning restrictions or set new targets. It aims for a five-fold increase in solar capacity by 2035.

The influence of carbon taxes

Mr Marshall says another problem with the UK’s dependence on gas is that its cost is increased by carbon taxes.

The UK introduced a carbon emissions trading scheme after leaving a similar scheme in the EU, which also affects the cost of coal.

To incentivize companies to reduce their emissions, the government sets a cap on their maximum level and creates allowances for each emission unit allowed under the cap.

Those who need more allowances are obliged to pay them.

The system is different in Northern Ireland, where electricity generators are still part of the EU trading system.

In addition to this, England, Scotland and Wales have an internal carbon tax, known as Carbon Price Support, which was introduced in 2013.

“It makes wholesale electricity more expensive in the UK than elsewhere,” Mr Marshall said – but it’s also one of the reasons the UK has reduced its reliance on energy in the UK. coal, which accounted for 40% of UK electricity ten years ago. .

Regarding the environmental goals of the policies, he says, “It’s something that works. This obviously comes at a cost, and that cost eventually trickles down to household bills.

Read more:
What is the price cap and why will bills rise so sharply?

Costs of government policies

Extra taxes are added to household bills in England, Wales and Scotland to fund government policies, costing a typical household around £160 a year, Mr Marshall said.

Examples include social schemes like the Warm Homes Discount, which gives low-income households £140 off their winter bills.

Another is the Energy Companies Obligation, a program to insulate the homes of low-income people, as well as replace inefficient boilers and old heating systems.

“Some other countries have decided to fund social programs through general taxation rather than through bills, because that’s usually fairer,” he says.

Most policy costs are levied on each unit of energy used.

He says those who use more energy will pay more, but even still, lower-income households are hit harder than they would be if those costs were funded through taxation.

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Network costs

Another part of what drives energy bills is the cost of the networks – the pipes, the wires and the network.

Mr Marshall says Britain has a privatized energy network, while in some other countries the network infrastructure is owned by state entities that “don’t make any money”, leading to lower costs.

“Companies running the networks in the UK are making huge amounts of money,” he says. “They can make profit margins of 30 or 40% on the cost of running the network because there’s a bit of regulatory oversight.

“The regulator who is supposed to look after consumer interest in terms of energy bills did not do that part of the job very well the last time it fixed how much money these companies were allowed to take. to win.”

In Northern Ireland, where energy governance is almost entirely decentralized and there are no price caps, the state owns the electricity transmission and distribution network.

Mr Marshall says some countries have also started paying for network upgrades needed to phase out coal earlier.

Bad insulation

Poor insulation doesn’t affect the price of electricity – but it does have a huge impact on how much households end up spending to keep their homes warm.

“We have some of the least airtight houses in Europe,” says Mr Murphy. “It also leads to higher energy bills. If the government had invested more in home insulation over the past decade, we would have warmer homes and use less energy.”

Mr Marshall says Italian residents can get grants that cover the full cost of upgrading their home – plus an additional 10% as an added incentive. The amount repaid over time depends on how much people earn.

State intervention and assistance programs

Some governments have stepped in to limit the cost of bills and provided greater financial support for those struggling to pay.

The UK government is offering a £200 rebate on energy bills from October which is set to be paid back over five years and is available to most people in England, Scotland and Wales. In Northern Ireland, a payment of £200 will be made to certain people on benefits.

Most households will also get a £150 reduction on their council tax bill this year, which applies to those living in properties in Bands A to D.

Mr Murphy said: ‘In the UK you have seen less generous government support for people to reduce their energy bills.

Read more:
Four simple changes you can make to save £400 on your energy bills

He points out that in Germany, the government has implemented comprehensive measures to protect consumers against rising energy bills.

These include a €300 energy relief allowance for those paying income tax, a €100 payment to increase child support, €200 for benefit recipients, as well as household grants. low income.

In France, where the state owns the main energy supplier, the government intervened directly to limit the increase in the energy bill to 4% this year.

To help pay for the support measures, Spain, France and Italy have imposed windfall taxes on the profits of energy companies.

A spokesperson for the Department for Business, Energy and Industrial Strategy said: “High wholesale gas prices are an international issue, based on global supply constraints. This is why our strategy to energy security will move the UK away from foreign fossil fuels to ensure we produce more clean, cheap and safe electricity at home, and reduce our exposure to international gas prices.

“We are continuing to help people struggling with rising energy costs, with a £22billion support package, including a £150 council tax rebate this month and a £200 energy bill in October.”