Energy Transition Outlook 2019

TR & NSITION ENERGY

Energy Transition Outlook 2019

Impact of the energy transition on consumers

Higher levels of investment in the energy sector will require significant funds to be raised from the private sector, including capital markets. Regulatory regimes will need to be established so that investors have appropriate revenue streams to cover costs and to provide suitable returns. The need to finance additional investment may also have some impact on consumer bills, particularly in terms of unit costs, while energy efficiency measures can help manage the overall impact. Current overall investment in the UK economy is around £350bn per annum, with around £200bn being business investment. As shown above, energy sector investment has typically been £20– 25bn of this amount in recent years, between 10–12% of the total.

Increasing this to a figure of £40bn per year, as indicated by the CCC, would correspond to around 20% of total business investment or, as shown in the pie chart below, roughly half the amount currently invested in housing and close to the total amount of investment by government. It is hard to assess the impact of the energy transition on households at this stage, and more work is required to do so. Typically, on average, UK household expenditure on energy products, including gas, electricity and fuels, has varied between 5–7% of disposable income. However, around 1 in 10 households are in fuel poverty, which is defined as a situation where more than 10% of disposable income is devoted to energy bills. This is relevant to the question of how rapidly the UK could decarbonise.

Summary of UK investment 2018 (total capital formation £bn)

19

83

205

58

Source: ONS

Business Investment

General Govt

Dwellings

Other

18