Since the energy crisis erupted last year, causing dozens of suppliers to collapse at the direct expense of millions of UK households, attention has chiefly focused on what the Chancellor can do to further support people through difficult market conditions.
With Rishi Sunak dipping into the taxpayers pockets for both costly furlough schemes and hospitality handouts in recent years, it was no surprise to see him announce a £9bn rebate scheme following Ofgem’s painful 54 per cent spike in the consumer price cap – which will see energy bills rise to nearly £2,000 per year from April.
He has even revealed to the Treasury Committee today he could intervene further this autumn – with analysts expecting another hefty hike in the price cap this October.
In his Spring Statement last week, however, Sunak appeared for the first time to focus on how consumers could potentially lower their energy bills through investment choices to could make their energy usage more efficient.
This included cutting the five per cent VAT rate on home improvements including solar panels – with homeowners potentially benefitting from tax savings of up to £1,000 per year and a possible £300 reduction in on energy bills.
Solar energy lags behind wind and natural gas in terms of the country’s energy mix, but has enjoyed steady growth over the past decade both on an industrial scale and in the consumer market.
There are now around one million homes with solar panels – while solar energy also consists of around six per cent of the UK’s energy mix with over 500 farms dotted across the UK.
This has coincided with a drop in the price of solar panels, with MoneySavingExpert.com revealing the cost of a standard 3.5 kilowatt system (which would cover 25-30 square metres of a household roof) has fallen from over £6,000 eight years ago to under £5,000 today.
It now forecasts the breakeven price for a standard solar panel set-up is around nine years.
Analysts sceptical of benefits for low-income households
Steve Buckley, head of data science at Loop said; “Solar power was already a great option for households looking to reduce their carbon emissions – a typical installation cuts emissions from energy use by about 1.6 tonnes per year.
David Bird, investment director Octopus Renewables Infrastructure Trust, told City A.M. while the latest measures are “welcome”, VAT cuts are unlikely to benefit households most in need of support.
He said: “If you’re able to invest in solar panels and you’ve got the right sort of property, then clearly you can save in your ongoing bills through domestic consumption of solar. But the people who are going to be hardest hit by the price increases are probably not the kind of people who can just afford to go and buy solar panels and put them on their roofs. “
The investment director also noted people living in flats or tower blocks in high-density housing areas won’t have roof space for solar panels.
This outlook was broadly shared by energy analyst Andy Mayer at the Institute of Economic Affairs, who argued that with prices elevated as they are – the VAT cut was unlikely to make a meaningful dent in rising costs.
He told City A.M.: “The main beneficiaries will be those with larger homes and budgets who can well afford five per cent. Many will question the political wisdom of raising VAT on waiters so their customers can enjoy discounted heat pumps for their holiday homes.”
Justina Miltienyte, energy policy expert at Uswitch.com, had a more optimistic take on the potential benefits of solar power set-ups under current funding arrangements.
The analyst recognised that while solar panels would not insulate consumers from high energy price rises this winter, they could “future-proof” homes and make them less reliant on market behaviour and power prices.
She said: “If you can afford the upfront cost, it is certainly worth considering benefiting from the VAT cut and installing solar panels. More needs to be done to make sure everyone can benefit from these technologies, not just the ones who can afford the upfront costs.”
With the VAT cut unlikely to offset household bills or lure in lower-income households, the possibility of solar panels easing cost of living pressures this winter is slim.
However, the growing investment incentives and declining prices point to the role the energy source could play in ensuring energy supplies are more secure and homes more efficient in the future.
This could ensure households are resilient to the next market shocks.