Scenario Modelling on Social Energy Tariff Proposal
This publication provides the results from scenario modelling on social energy tariff proposal.
Methodology
To derive the discount received under the proposed social energy tariff, households are assigned to one of 9 groups, based on the combination of the eligibility criteria they meet.
These 9 groups are set out in Table 1, alongside the discount they receive on their energy tariff and standing charge, how many of this type of household there are in Scotland, and what percentage of the group is fuel poor. Table 1 shows that of the 2.535 million households in Scotland, 660,000 (or 24%) would be eligible for a discount and that 83% of these households are in fuel poverty.
To estimate the impact on fuel poverty once households were assigned to a group, their modelled fuel bills were deconstructed into the standing charge and the kwh rate for each fuel type used. The applicable discount was then applied (see Table 1) to the unit rate of each fuel type used by the household, with the standing charge added back on for those households that do not qualify for the standing charge removal, and the household’s modelled fuel bill is then rebuilt.
Using the new modelled fuel bills the fuel poverty calculation was then rerun in order to derive the fuel poverty rate under the proposed social energy tariff.
To estimate an approximate cost for the proposed social energy tariff, the new modelled bill was subtracted from the household’s original modelled fuel bill. The difference for each household was then added together to produce estimated savings for households and an estimated cost of the proposed tariff. It should be noted that the fuel bill that is calculated as part of the SHCS is a modelled fuel bill based on a household’s required energy use to meet one of four statutory heating regimes dependant on the characteristics of members of the household[1]. This differs from the actual energy use of the household, which may vary considerably depending on personal preference and priorities relative to other types of household expenditure. Due to this, the modelled fuel bills used as part of the fuel poverty calculation in the SHCS may overestimate how much a household actually pays for fuel.
In order to provide an estimated cost of the proposed social energy tariff calibrated to actual consumption, we have also used the ratio between the cost of the average modelled SHCS fuel bill with standing charges removed (£3,072) and the estimated average domestic gas and electricity fuel bill (£1,882), produced by the Department for Energy Security and Net Zero[2], which also exclude standing charges. This results in a ratio of 0.613.
To calculate calibrated fuel bills we applied the ratio (0.613) between the average SHCS modelled fuel bill (with standing charges removed) and the estimated average annual bill provided by DESNZ to each household’s annual modelled energy consumption in the SHCS to create a calibrated energy use figure for each type of energy used in the household. We then applied the SHCS per unit rate to the new calibrated energy consumption and added in standing charges to create a new calibrated bill without the social tariff.
Using the eligibility criteria set out in Table 1, we then applied the discounts a household was eligible for to the per kwh price of the households energy. These unit rates where then combined with the households calibrated energy consumption in order to create a calibrated fuel bill under the proposed social energy tariff. The difference between these bills was then summed to derive the calibrated cost of the social tariff.
[2] Annual domestic energy bills - GOV.UK, Table 2.2.2 and Table 2.3.2. These tables already exclude the standing charges.