Did you know that the UK Governments want to rebalance the cost of electricity and gas? The National Infrastructure Commission report of 18 October 2023 included the following line:

“Government has committed to rebalance the cost of electricity and gas.”

National Infrastructure Commission

The phrase “rebalance the cost of electricity and gas” is really a euphemism which means there is a desire to increase the cost of Natural Gas relative to electricity.

This idea of “rebalancing” has not yet emerged as a fully fledged policy. It was mentioned in the March 2023 HMG report “Powering Up Britain – Energy Security Plan.”

The Powering Up Britain strategy has already seen some policy ideas downscaled or delayed by the Prime Minister Rishi Sunak. Within the document it states the following:

“We accept the Independent Review of Net Zero recommendation that Government should commit to outlining a clear approach to gas vs. electricity ‘rebalancing’ by the end of 2023/4 and should make significant progress affecting relative prices by the end of 2024.”

“Rebalancing will generate the clear short-term price signal necessary to shift both households and businesses to lower-carbon, more energy efficient technologies like heat pumps.”

Powering up Britain

According to this, we can expect the policy approach to be finalised in the next 6 months, with this filtering through to prices in 14 months time.

However, the mood music in Downing Street has shifted away from this. As at January 2024, it seems unlikely that the Prime Minister will artificially raise the cost of natural gas during an election year, especially following the rhetoric and policy decisions of the past few months.

Our working assumption is that in the next few years, perhaps after the next general election, the UK Government will start to increase the cost of natural gas relative to the cost of electricity.

There are 2 pricing mechanisms available. One is the unit cost per kWh and the other is the daily standing charge.

The focus tends to be on the unit cost but the standing charge has risen by 60% since September 2021.

“High standing charges are a moral hazard…..Keeping the standing charge high means lower users can save proportionately less and less by reducing usage – that disempowers them – and is a disincentive to energy reduction generally, which is not great for the environment.”

Martin Lewis

In October 2023, the combined daily standing charge for gas and electricity was set at an annualised £302 per year. This is before any energy is consumed.

“Rebalancing” would give the impression that the annual amount will remain the same, but the split will change from 53p electric / 29p gas to more like 41p / 41p.

However we wouldn’t be surprised if the price of gas will rise to meet electricity, resulting in a daily standing charge of 53p electric / 53p gas.

The nudge theory of economic policy

As Martin Lewis correctly states, a high standing charge creates an artificial disincentive to reduce overall demand.

And unless Government explicitly states that the high standing charge has been created to penalise people who use gas (which seems highly unlikely!) then we struggle to see how it will actually enhance the outcomes that policy makers suggest they seek.

Protect yourself from the policy to rebalance the cost of electricity and gas – The Brimstone Energy UK solution

At Brimstone Energy we have a clear-eyed vision for the future, one in which everyone has access to cheap and abundant energy.

It is evident that the supply of energy has become ever more politicised.

Our 4-step solution puts you back in control:

1. Get a heat loss survey of your home to identify ways to make your home more energy efficient in as cost-effective way as possible.
2. Reduce energy demand through targeted investment.
3. Generate electricity through solar panels.
4. Store excess electricity using home storage batteries and thermal stores, allowing you to arbitrage electricity where possible.

Learn more about the Brimstone Manifesto here.

Brimstone Energy UK – Helping you navigate the Green Energy Transition