Recommendations

1. The UK needs a clear strategy for shifting away from fossil fuels, particularly gas, across the whole economy.

The transition to net zero will make the UK more energy secure and protect against another crisis. There are several strategies due from the Government, for example on how it will meet its 2030 clean power mission and a revised Net Zero Strategy, that should cover broadly how we will transition from gas.

There is still expected to be 5% of unabated gas on the power system even when the transition from gas has been made, and gas will be used by some industries for years to come. It would be useful to link the strategy to the Climate Change Committee’s assessment of gas usage.There should be a specific strategy for switching away from fossil fuels that should include full supply chains from upstream producers and power stations to downstream networks and appliances.This strategy should also focus on how the low carbon transition will be delivered, including: cross-departmental analysis of the skills and supply chains required to shift from fossil fuels; the planning system; and managing the gas and electricity grids. Oil and gas will play a role, albeit declining, for years to come, but the transition should be managed to enable workers to reskill for new industries.

Growth in carbon capture and storage (CCS) technology, which will have an important role in decarbonisation, may be incentivised by the Government’s recent commitment to long-term investment in the sector and could be an economic opportunity for the UK to seize as other countries follow the UK’s journey to net zero. The UK should not rely on CCS for limiting emissions and the priority should be shifting away from fossil fuels.  

2. The Government should continue its mission to accelerate progress towards clean power and be ambitious on renewables and improving grid infrastructure.

The transition to net zero and achieving the UK’s goal of clean power is essential to avoid a future energy crisis, as a decarbonised energy system means reducing exposure to volatile gas markets.

The Government should continue at pace with the establishment of clear governance frameworks and institutions for delivering 2030 and 2050 targets in the most cost-effective manner for bill payers and taxpayers.Continuing to reform planning regulations and accelerating the rollout of grid infrastructure will be essential to creating an energy system that is not reliant on volatile fossil fuels, giving the UK greater energy security.The Government should also reform tax incentives to stimulate businesses to invest in decarbonising their assets.

The Contracts for Difference (CfD) scheme is the gold standard and will remain the main way to deliver low carbon power but could evolve to increase its effectiveness. The Government should consider how the CfD can procure a greater number of projects in the short-term to meet our targets, while continuing to assess longer-term reforms as part of the Review of Electricity Market Arrangements (REMA) programme to future-proof the CfD and address the responsiveness of CfD assets to system needs. This will also ensure that the benefits of low carbon power are efficiently passed through to consumers.

3. Pursue market reform urgently: accelerate the deployment of low carbon power to reduce the proportion of time that unabated gas is setting the electricity price, rebalance policy costs on bills, and incentivise flexibility.

To lessen the impacts of fossil fuel price spikes on electricity prices, the wholesale market should be reformed to be fit for a low-gas future. The Government should continue the Reform of Electricity Market Arrangements process to achieve this objective.

It is essential the government urgently explore how best to recoup policy costs currently disproportionately added to electricity bills so that they are not artificially inflated as more households electrify. This must be done while protecting low-income households that are unable to switch away from gas.Consumers should be incentivised to be flexible and shift demand away from peak times, for example through demand-side response for industry and business or the demand flexibility service for households. Flexibility brings down the cost of running the power system and so benefits all consumers, whether or not they participate, but trials for lower-income and vulnerable consumers would help find ways for these households to maximise the benefits.

Completing the smart meter roll out should be a priority so that consumers can interact with their energy use and access innovative tariffs, including the use of half-hourly settlement. At present, the slow roll is a risk to progress, as is the fact that  some meters – around 10% – are not operating in smart mode.

4. As the energy retail market emerges from the crisis, regulation should be reviewed to ensure it can drive improved standards, and appropriately protect consumers from supplier failure while promoting competition and innovation.

Ofgem must have the right powers to improve standards in the sector and close the remaining protection gaps in relation to supplier failures. This should be a core part of its new Consumer Confidence programme, which is seeking to clearly define outcomes for the sector and redesign regulations and incentives.

Ofgem should also monitor the changes it’s already made following the crisis, including adjustments to how much financial risk energy suppliers are allowed to carry, so that they remain fit for purpose.

5. Increase public investment in home energy efficiency to improve millions of cold, damp, unhealthy homes, urgently setting out further details of the Warm Homes Plan, pledged in the Government’s manifesto, beyond those already confirmed.

It is essential this includes a long term, stable policy that prioritises low income and vulnerable households, and is sufficient to meet the statutory fuel poverty targets.

The Government should establish a single accreditation scheme for the low carbon home improvement sector, with access to independent advice and redress if things go wrong, and legal enforcement to tackle rogue traders and poor quality work.Further details of the Warm Homes Plan should be set out urgently as part of a multi-year plan, as the UK cannot afford to wait to boost insulation, including any new support schemes that go beyond the existing ones that have already been adopted by the new Government.

Ensuring that there are robust supply chains and enough skilled installers will be essential for achieving the decarbonisation of homes. 

6. Introduce strengthened energy efficiency regulations for the private rented sector, which has the least energy efficient homes, and implement the Future Homes Standard for better quality new builds from 2025.

Following its recently announced consultation, the Government should require privately and socially rented homes to meet Energy Performance Certificate (EPC) band C by 2030 as part of its Warm Homes Plan. The Government also needs to provide clarity to landlords and tenants on the specification of the target, the support available to reach it, and any relevant exemptions.

To ensure new builds are efficient and avoid making the UK more reliant on gas, the Government should be firm with housebuilders on implementing a Future Homes Standard from April 2025 that includes low carbon heating and solar panels as standard, where efficient. Previous delays have worsened the current crisis; tighter new build standards, delivered at pace without further delay, are essential.

7. Accelerate rollout of electric heat pumps via the Clean Heat Market Mechanism (CHMM) and set out a plan for transitioning off gas heating.

It is crucial that the Government makes progress with the introduction of the CHMM (from April 2025).

To enable a measured transition, the Government should set out its plans for decarbonising heating, including whether it will mandate an end to sales of new fossil fuel boilers.The Boiler Upgrade Scheme should be continued alongside engagement with the public to develop demand and supply chains in line with the trajectory of the CHMM, potentially increasing investment in this technology.Energy efficiency schemes like the Energy Company Obligation and Great British Insulation Scheme should be extended and enhanced with long-term funding beyond 2025, so the poorest households are able to afford heat pumps.

Households that remain on gas in the short term should be given support and guidance about making the switch, for example with low flow temperatures, changes to radiators, and how they can best prepare.

8. Provide targeted and scaled-up support for businesses and energy intensive industries to decarbonise.

Continuing support schemes such as the British Industry Supercharger and the Industrial Energy Transformation Fund, or creating targeted support for sectors such as a Green Steel Innovation Fund, to help leverage private sector investment to decarbonise industrial processes.

Businesses should be incentivised to invest in renewables, for example through tax incentives and decarbonisation vouchers. This should also include support with reforms to the connections process and associated costs as increasingly more businesses look to electrify their operations.For smaller businesses there should be an extension to the Business Energy Advice Service Pilot and further support to enable firms to benefit from the Help to Green scheme.However, there should be a blended approach to funding support measures so that low-income households and those in vulnerable circumstances should not bear the cost of this support.

Deliver long-term and stable carbon market policy alongside effective measures to mitigate the risk of carbon leakage. This should include a well-designed UK Carbon Border Adjustment Mechanism that is consistent with the EUs alongside linkage of the UK and EU’s Emissions Trading Systems (ETS).

9. Urgently improve support for vulnerable households, including better targeting through data sharing and matching.

The Government should introduce broader, deeper, and longer-term support for low income and vulnerable households that awards more struggling households with more support guaranteed over a longer period. There should be a blended approach to funding support that does not put upward pressure on the bills of households that are struggling but may not qualify for support. As bills are predicted to remain high, so will the need for support. This is an urgent matter for the Government this winter.

Data should be shared and matched between government departments, Ofgem, and with industry to allow low income and vulnerable households – as well as vulnerable businesses – to be identified and helped more quickly and efficiently. This will continue to be useful for identifying households eligible for government energy efficiency schemes to boost reach.

Government should implement a clear strategy to address customer debt, working with the energy industry, particularly suppliers carrying debt, and consumer organisations that have real-world experience with households in debt.

10. The Government must develop an overarching plan to reduce the risk of future crises and it is crucial that this includes regular stress testing of the UK’s resilience to price shocks and disruption.

The true cost of the energy crisis to households, businesses, public services like the NHS and the economy remains unknown. The Government should work to understand this so that it is able to judge the benefits of decisive action now that would mitigate future crises.

An overarching plan to reduce the risk of future crises, both in likelihood and severity, is essential and it must have decarbonisation and affordability at its heart. This should be a cross-government department plan, with DESNZ and the Cabinet Office as the lead but with relevant stakeholders brought in.This should also cover energy storage, including gas storage, which is key to resilience to potential supply disruptions in future.

Ministers and senior stakeholders should undertake regular exercises to test the ability of the UK energy system to withstand global and UK-specific price shocks and supply disruptions.