CAR’s results allow us to model impacts at today’s energy prices and four price scenarios for 2028 when the Scottish Government’s new heating requirement could take effect.

The scenarios explore expected changes to pricing as more renewable generation is connected to the grid and if the UK Government makes changes to levies that are currently added to electricity bills (eg, to fund energy efficiency schemes for fuel-poor households and support for renewable generation). For simplicity, we keep a consistent gas price across the scenarios of £7.32 p/kWh. We use an oil price of 8.3p/kWh (based on an average of prices in Scotland between Jan 2023 and Jan 2024). These prices are the ‘baseline’ against which the energy bill impact of heat pumps was measured.

2028 electricity and gas price scenarios

Wide

This adjusts electricity prices downwards, in line with industry expectations of a reduction in wholesale electricity costs in winter by 2028 but no change to UK Government policy costs. The per unit cost ratio of electricity to gas for consumers is 3.3.

Medium

The same reduction in wholesale electricity costs as above and current UK Government levies on electricity bills are removed. The consumer electricity to gas ratio is 2.6.

Narrow

This again factors in lower wholesale costs and removes UK Government levies. A further discount on electricity prices is applied to achieve a ratio against gas of 2.0. This additional reduction is within the range of estimated savings that further reforms to the electricity market could provide. The Review of Electricity Market Arrangements (REAMA) is looking to remove the distorting effect that high gas power prices have on payments to all generators – see UKERC ‘The case for Pot Zero’ for an estimate of potential savings. Alternatively, it could be achieved by a government discount or subsidy applied to electric heating bills.

For the bills analysis at today’s prices, we have used Ofgem price caps from July 2024 which give a per unit cost ratio of electricity to gas of 4:1 for consumers.

Time-of-use tariffs

These are special tariffs that encourage consumers to use electricity during off-peak periods. They could have a big role in the future in helping reduce electricity demand at peak periods which could reduce the amount of electricity generation and grid reinforcement that needs to take place.

For this work, the CAR modelling used current tariffs which are 40% cheaper at off-peak times (47am and 1-4pm) and 60% more expensive at peak times from 4-7pm compared to the standard price outside those hours. Thermostat settings were changed in response to the peak and off-peak periods with homes heated 2°C warmer in off-peak periods (including in the morning) and allowed to cool 2°C below normal temperature from 4-7pm. It was assumed that no other electrical demands were shifted.