Net zero race will mean high energy bills for up to a decade, warns KPMG

Net zero
Net zero

Households are facing a decade of higher energy bills from the race to hit net zero and inflated gas prices, KPMG has warned.

Yael Selfin, chief economist at KPMG, said bills will remain elevated for the next five to 10 years because the “transition to net zero is going to add cost one way or another to our energy bills”.

Ministers have set a target for the UK to hit net zero emissions by 2050, but experts have warned that cutting fossil fuel supplies too quickly risks a fresh surge in energy prices.

KPMG’s forecast came as the UK’s infrastructure tsar warned that ministers are in danger of missing these targets after only achieving “negligible” progress on insulating homes and rolling out heat pumps.

The Big Four accountant said that energy bills were likely to remain around 93pc higher over the next decade than in the two years before Russia invaded Ukraine, which fuelled a surge in wholesale gas prices.

Wholesale gas prices have dropped by more than 80pc since their peak last August, though they are still roughly triple what they were before the energy crisis began.

KPMG’s Ms Selfin said she expects energy bills to drop in July and remain at that level for the next five to 10 years.

Analysts at Investec have predicted that the energy price cap, as set by the regulator Ofgem, will drop to £1,981 from July from its current level of £4,279. In February 2020 the cap was £1,042.

Ms Selfin said: “There could be other energy shocks, but on average that may be more of the equilibrium price.”

In a separate report on Monday, the National Infrastructure Commission (NIC) said the slow pace of home energy improvements is putting in doubt the Government’s ability to meet its legally-binding commitments to cut carbon emissions by set amounts.

Under the so-called sixth carbon budget, a milestone towards its 2050 net zero target, Britain has vowed to cut its 2035 emissions by 78pc compared to 1990 levels.

The budget is predicated on, among other things, 600,000 heat pump installations happening per year from 2028 and the vast majority of homes having extensive insulation and double glazing to meet energy efficiency requirements.

But the NIC, chaired by former Olympic Delivery Authority chairman Sir John Armitt, has warned that this target is currently on course to be missed.

Sir John added: “A further year of prevarication risks losing momentum on critical areas like achieving the statutory net zero target.

“Rarely has the need for speed been more evident.”

In an annual review, the commission said the pace of change in insulating homes and replacing gas boilers with lower-carbon alternatives such as heat pumps was currently “too slow”.

It warned that initiatives such as the boiler upgrade scheme – where homeowners can receive £5,000 vouchers to help pay for heat pumps – “are not sufficient” to spark widespread change.

Only 55,000 heat pumps were installed in 2021. The electrically-powered devices raise the temperature in people's homes by absorbing the heat from air outside – but they remain too expensive for the vast majority of households.

The commission said the boiler upgrade scheme was “too small and too short term to materially scale up heat pump deployment”, with the annual number of installations only forecast to reach about 350,000 per year by the target year.

It also warned there was no “concrete plan” for improving the energy efficiency of homes and called for landlords to face tougher requirements on improvements.

A government spokesman said: “We are committed to achieving our net zero goals and are spending £12.6bn this decade to cut national energy consumption by 15pc.

“Delivering high quality infrastructure is the foundation of our future growth and we have maintained our total investment at record levels over the next five years, with the Commission recognising our progress on gigabit broadband rollout and renewable electricity generation.”