Consumers continue to benefit from heating oil price plunge signalling urgent need to re-think UK heat policy

As the price of heating oil tumbles further, falling a staggering 10 per cent since the beginning of the year, the UK’s 1.4 million rural households on oil heating are continuing to benefit. However, with over 4.5 million people in the UK still living in fuel poverty - and many of these in rural areas - government needs to urgently address its current heat policy to help these homes become more energy efficient and cut fuel bills further.

-    Heating oil prices have fallen by 10% since 1 January on top of 29% drop in 2015
-    UK’s 1.4 million oil heated households saving hundreds of pounds on annual fuel bills
-    As cost remains key driving force, most consumers will stick with oil
-    Government must urgently re-think rural heat strategy in light of oil price collapse

For the past two years, oil has remained the cheapest heating fuel for off-grid homeowners with typical annual bills for a three bed house currently around £793 pa (Sutherland Tables, October 2015) – that’s 48.7% cheaper than LPG, 50% less expensive than electric storage heaters and some 24% cheaper than mains gas.

According to online fuel price comparison websites the average UK selling price of kerosene at the beginning of this week stood at just 26.3 ppl – the lowest point since March 2007 and well over 50% cheaper than when prices peaked in spring 2013.

Unlike gas and electricity, oil users are saving hundreds of pounds as the price drop is being passed on to consumers. During 2015, the wholesale cost of oil fell by 44% and the average retail cost fell by a substantial 29%. By comparison, the average wholesale price of mains gas dropped by 34% but consumers only saw their fuel bills cut by a minimal 3%.

With cost remaining a key driving factor for the majority of consumers, it is likely oil will continue to be the fuel of choice for existing users. Low prices could even encourage some of Great Britain’s 171,000 rural homes on LPG and 2.4 million households using electric storage heaters to switch to oil as a much cheaper option.

This is despite the introduction of government incentives to improve energy efficiency in off grid homes such as the domestic Renewable Heat Incentive (RHI) scheme which aims to encourage households to switch to 100% renewable technologies such as heat pumps.

Latest industry figures* show the annual cost of heating an average home with an air source heat pump for example is £1,453 – almost twice that of oil. With such a huge difference in running costs, in addition to the upfront installation costs of between £7,000 and £19,000 for renewable systems, it is not surprising consumers have been reluctant to take up this step.

Jeremy Hawksley, director general of OFTEC, the trade association for the oil heating industry, comments: “Plunging oil prices make it even less likely that consumers will take up costly schemes such as the domestic RHI, currently the government’s main vehicle to help off grid homes increase energy efficiency and reduce CO emissions.

“With low prices looking set to continue for the foreseeable future, government must now urgently re-think the UK’s heat strategy to take account of the current situation. This is especially important given the estimated 4.5 million UK households still living in fuel poverty – an issue which is more prevalent in rural areas due to the higher proportion of older, poorly insulated properties.”

Additionally, an estimated 43,900 excess deaths in England and Wales occurred last winter (2014/15), the highest number since 1999, and according to the World Health Organisation, some 30% of these were due to vulnerable people living in cold homes which they couldn’t afford to adequately heat. This equates to around 47,660** needless deaths over the last five years.

Recommendations for change

Jeremy Hawksley continues: “What off grid consumers need are simple, practical and affordable solutions that will help improve energy efficiency, and importantly, cut carbon emissions.

“OFTEC continues to lobby government at a national and local level for change and recently submitted recommendations to DECC for a combined energy efficiency and carbon reduction policy that would encourage far greater buy-in from consumers.”

OFTEC’s recommendations include the introduction of a simple boiler scrappage scheme to encourage the 600,000 plus households in Great Britain still using old standard efficiency boilers to upgrade to high efficiency, modern condensing models.

The move could see an average four bedroom home reduce annual fuel consumption by up to 24% (- 784 litres p.a.) and cut CO2 emissions by 33% (- 2418 kg p.a.). So the potential for carbon reduction via this simple, cost effective route is huge.

A similar scheme in Northern Ireland saw more than 13,350 new oil condensing boilers installed between September 2012 and March 2015, saving over 21,500 tonnes of CO2 per annum as well as significantly reducing consumers’ fuel bills. The vast majority of these boiler replacements would not have happened without government funding.

Jeremy Hawksley concludes: “The dramatic drop in oil prices we have seen in recent times represents a real opportunity for change. Government needs to recognise the playing field has changed and current schemes such as the domestic RHI, which is already proving ineffective, need to be urgently replaced with incentives that will actually work.”

*Sutherland Tables, October 2015
**Chilled To Death: The human cost of cold homes by The Energy Bill Revolution in association with the Association for the Conservation of Energy
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