How to beat rising energy prices

Ruth Jackson-Kirby looks at why alternatives to traditional boilers look appealing in the face of rising prices

Soaring energy bills are leading us all to think about how we can reduce our bills. But how far are you willing to go to keep your costs down? This month the energy price cap was raised by £693 to £1,971 (this represents the annual cost per household assuming average usage – your bill could be more or less depending on energy consumption) due to rocketing gas and electricity prices. It is expected to rise again in October, possibly to as much as £2,500.

Faced with the prospect of average energy bills rising by more than £1,000 in just 12 months, many of us are now looking at how to cut the amount of energy we use. It is even worse for people using oilfired heating – there is no price cap on oil. Disruption caused by Russia’s invasion of Ukraine sent prices from around 65p per litre to 155p by mid-March.

The pros and cons of new-builds

In the most extreme cases some of us are even thinking about moving house to cut our bills. Applications for unbuilt properties were 50% higher in the first three months of 2022 compared with the five-year average, according to data from Knight Frank. It’s believed the energy efficiency of new-build homes is the reason for the increased interest. Research by the Home Builders Federation trade association finds that 84% of new builds have an Energy Performance Certificate rating of B or higher. Only 3% of older homes manage the same. But what you may save on energy bills you will spend on stamp duty, so moving home may not be the most cost-efficient way of keeping costs down. 

Green alternatives

Far more of us are considering going greener to reduce our energy bills. Interest in solar panels has hit a five-year high, according to A-Plan Insurance. However, while green energy might help the planet, it won’t necessarily help your wallet. You need to choose carefully if you want to see an immediate improvement in your bills.

For example, if you opt to install solar panels it could take more than a decade for you to recoup your costs. The average 4.2 kilowattpeak solar panel system costs around £6,500 to install. Once it is up and running, you’ll be able to use the power it generates and sell any excess back to the grid.

The problem is that despite ramping up what they charge us for electricity, suppliers haven’t increased what they pay for it. The energy price cap limits what electricity firms can charge you to 28p per kilowatt hour (kWh), and most suppliers pay around 3p per kWh for energy sent back to them. Combine the upfront costs with these pitiful payments, and it could take anything from 13 to 24 years for solar panels to earn back what they cost, reckons MoneySavingExpert.

A better option may be an air source heat pump. These have failed to really grip the market due to the high cost of installation (around £10,500) but high gas bills now mean they could be cheaper over a lifetime than a traditional gas boiler. You can cut costs to around £4,975 with the government’s new £5,000 grant and VAT cut.

You can then expect annual running costs of between £723 and £964, figures from the Regulatory Assistance Project show. A new gas boiler costs an average £2,700 to install and £984 a year to run. This means that over a decade (the typical lifespan of a gas boiler) a heat pump would work out £412 cheaper. Better yet, the heat pump should last 20 to 25 years. The drawback is that they aren’t very effective in older, draughty homes.

Savings over the long-term

Another option is a wood-powered boiler. These can cost up to £20,000 to buy and install, but the Boiler Upgrade Scheme means you can get a grant of up to £5,000 to help with the initial investment. Annual costs used to start at around £250 for wood pellets, but much of this was sourced from Russia, so prices have risen considerably to around £385. However, this is expected to be a short-term problem while new supply chains are put in place. If you can afford the upfront cost, then changing your heating system could save you hundreds of pounds over the years.

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