Claims that drilling in the North Sea will significantly save households money are “pure fantasy”, experts have warned, as analysis showed renewables could cut bills by hundreds of pounds.
An analysis by Oxford University's Smith School showed that a UK powered entirely by renewable energy, with electricity coming from clean sources and people using technology such as electric heat pumps to heat their homes, could save households up to £441 a year on bills.
By contrast, maximizing North Sea oil and gas extraction would save households between £16 and £82 a year, and those savings would only be achieved if tax revenue collected from fossil fuel companies was redistributed to households to offset their energy bills.
If the Government did not use the tax revenue it collects from North Sea drilling solely to help reduce household bills, there would be “no discernible benefit” to consumers as oil and gas prices are set by volatile international markets, analysts said.
Dr Anupama Sen, co-author and head of policy engagement at the Smith School of Business and Environment, said: “The idea that draining the North Sea would make the UK more energy secure or save significantly on household bills is pure fantasy.
“We showed that, regardless of the remaining useful life of North Sea oil and gas, a 'small drill' extraction approach would actually cost households more money compared to continuing on our clean energy path.”
The analysis comes amid rising energy prices as a result of the US-Israel war against Iran, which has closed the Strait of Hormuz – a key shipping route for oil and gas supplies – and roiled energy markets.
Energy costs look set to rise in the next price cap in the latest blow to households, particularly those on low incomes, which have been hit by the Covid-19 pandemic and the Russian invasion of Ukraine, which have led to high and volatile prices.
The UK Government's reaction to the latest rise in fossil fuel prices has been to double down on the push towards clean energy, while hinting at measures to ease pressure on households, such as canceling fuel tax rises planned for the end of this year.
It has announced that it will make plug-in solar panels for the first time in the UK for people to place on balconies and outdoor spaces and is bringing forward the latest auction of contracts to supply electricity at fixed prices from renewables such as solar farms and offshore wind.
But there have been calls from the Conservatives and reformist Britain to increase supplies of North Sea oil and gas and reduce bills by scrapping measures to help the UK move to a clean “net zero” economy, such as new renewables and subsidies for heat pumps.
US President Donald Trump has also weighed in on the debate, repeatedly criticizing wind energy and urging the British government to focus on drilling in the North Sea, despite it being a declining oil and gas basin.
The analysis found that if the remaining North Sea oil and gas resources were fully exploited and the revenue from a “realistic” tax take was redistributed directly to households, £82 could be saved on the average bill.
If the Government were to remove windfall tax on the profits of North Sea oil and gas companies, those annual savings – if the remaining taxes were passed on to households – would be reduced to just £16.
However, if all UK households switched to renewable energy, bills could be reduced by between £105 and £441, depending on the extent of electrification and how bills are designed.
The analysis said the savings are based on energy prices in January before the United States and Israel launched their attack on Iran, with oil and gas prices lower than now, and are therefore “conservative” estimates of the benefit of renewables.
And they are recurring once the system changes, while North Sea oil and gas is a finite resource.
If electricity is dominated by renewables, they will set the price of energy – unlike today's world where it is mainly set by gas – reducing bills by £105 for those on dual fuel bills.
But if homes were electrified, for example by replacing gas boilers with heat pumps, they could save £330 a year on their bills, and if electricity bills were rebalanced so that policy costs were included in general tax, a saving of around £441 a year would be achieved.
Co-author Cassandra Etter-Wenzel said: “Achieving this requires upfront investment, especially for heat pumps and insulation, and is therefore dependent on effective subsidy and financing mechanisms, particularly for low-income households.”
Dr Sen added: “Heat pumps are particularly important for reducing bills because they are much more efficient than gas boilers,” producing around three units of heat for every unit of electricity they use, compared to less than one unit of heat per unit of gas in boilers.
