Prime Minister Truss announces help for heating oil

wwally

NedS said:

I thought I'd look at some rough numbers for this.

Liz Truss' speech is available here:

https://www.gov.uk/government/speeches/pm-liz-trusss-opening-speech-on-the-energy-policy-debate

She said:

For those using heating oil, living in park homes or those on heat networks, we will set up a fund so that all UK consumers can benefit from equivalent support.

So lets look at some prices and work out what "equivalent support" may look like:

I'm not an expert in fuel pricing - just a user. Why use the energy content of the fuel as a comparator? Gut feel suggests that oil is more inefficient (ie less combustable) than gas, and what matters is how much it costs to run the appliances to a similar effect. So I would prefer to see the cap set according to the price per litre against some nominal historic benchmark. All I know is that my annual bill will double from last winter and triple from the year before.

drsquirrel

wwally said:

dunstonh said:

https://www.gov.uk/government/publications/energy-bills-support/energy-bills-support-factsheet-8-september-2022

The key things are

1 - There is no mention of oil on the website

2 - it refers to "Those households not on standard gas or electricity contracts" - most people on oil are also on electric

3 - the reference is to a discretionary fund.  i.e. there will be discretion on whom gets paid.

1. Heating oil was explicitly mentioned in the PM's speech in Parliament (LPG was not)

2. I think the best assumption is that (nearly) everyone is on mains electricity but the main heating fuel can be mains gas, LPG, heating oil, wood pellets etc and all such fuel prices will be controlled so that users achieve equivalent benefits.

3. Yes, the word discretionary is puzzling unless explained, which it has not been yet!

Being that most of us are also on Electric, and the main payment is per meter, we're already going to get the help for "both" fuels (if its assumed half of that 400 is for the _other_ fuel).

wwally

drsquirrel said:

Being that most of us are also on Electric, and the main payment is per meter, we're already going to get the help for "both" fuels (if its assumed half of that 400 is for the _other_ fuel).

Yes, but the £400 was under the previous scheme, to be carried forward. The Govt has acknowledged that more needs to be done. They argued that the new EPG is 'saving' the average bill payer £1000 (plus the £400). If on average that is 50:50 electricity and a heating fuel, then each fuel is supported to the tune of £700pa. So in the absence of any official information, I speculate that this is the level of support envisaged. (for the mythical median bill payer)

drsquirrel

wwally said:

drsquirrel said:

Being that most of us are also on Electric, and the main payment is per meter, we're already going to get the help for "both" fuels (if its assumed half of that 400 is for the _other_ fuel).

Yes, but the £400 was under the previous scheme, to be carried forward. The Govt has acknowledged that more needs to be done. They argued that the new EPG is 'saving' the average bill payer £1000 (plus the £400). If on average that is 50:50 electricity and a heating fuel, then each fuel is supported to the tune of £700pa. So in the absence of any official information, I speculate that this is the level of support envisaged. (for the mythical median bill payer)

Ah yes, in lieu of our lack of cap on gas etc.

NedS

wwally said:

NedS said:

I thought I'd look at some rough numbers for this.

Liz Truss' speech is available here:

https://www.gov.uk/government/speeches/pm-liz-trusss-opening-speech-on-the-energy-policy-debate

She said:

For those using heating oil, living in park homes or those on heat networks, we will set up a fund so that all UK consumers can benefit from equivalent support.

So lets look at some prices and work out what "equivalent support" may look like:

I'm not an expert in fuel pricing - just a user. Why use the energy content of the fuel as a comparator? Gut feel suggests that oil is more inefficient (ie less combustable) than gas, and what matters is how much it costs to run the appliances to a similar effect. So I would prefer to see the cap set according to the price per litre against some nominal historic benchmark. All I know is that my annual bill will double from last winter and triple from the year before.

How else would you make a comparison that would offer "equivalent support"? If the price of gas is capped at 7p per kWh (or whatever), why not cap the price of oil at the same level for those not on mains gas and are reliant on oil.

Gas and electricity prices will both presumably be capped under the new scheme at a set price per kWh. Our homes require a set amount of kWh output of energy to heat. The only real differences between gas and oil will be the relative inefficiencies of an average gas boiler vs an average oil boiler. Google seems to suggest that modern variants of both are highly efficient

With respect to your bill doubling from last winter - is that not the same for those using Gas too? I don't see how the price could reasonably be set against an historic benchmark when the price of oil has been so volatile. Over the last 3 years, the price has varied from 20p/L during the depths of Covid up to 200p/L when the Ukraine war started. Oil prices now are around the same as they were in April. Under the now defunct Oct 1st price cap, gas prices were set to be double what they were in April (15p vs 7p). We have not seen that doubling over the last 6 months in the price of oil.

NedS

wwally said:

drsquirrel said:

Being that most of us are also on Electric, and the main payment is per meter, we're already going to get the help for "both" fuels (if its assumed half of that 400 is for the _other_ fuel).

Yes, but the £400 was under the previous scheme, to be carried forward. The Govt has acknowledged that more needs to be done. They argued that the new EPG is 'saving' the average bill payer £1000 (plus the £400). If on average that is 50:50 electricity and a heating fuel, then each fuel is supported to the tune of £700pa. So in the absence of any official information, I speculate that this is the level of support envisaged. (for the mythical median bill payer)

That would be nice. I'd happily accept an additional £700/year support towards my oil costs as they are now. But what if the price of oil sharply increases or decreases?

lohr500

Call me a cynic, but if a "cap" is set on the price per litre cost of oil and the actual cost falls below the cap, what stops the kerosene producers artificially keeping the price high?

Presumably most, if not all, of the suppliers we order our heating oil from must purchase their fuel from a small number of bulk refiners/distributors?

I can't help but think if a cap is set on oil, then we will end up paying the capped rate whatever happens to the price in the real world. Similar to what has happened with University tuition fees and the maximum student loan tuition fee loan value. 

Is there any Ofgem equivalent monitoring heating oil pricing to ensure fair play from the refiners? 

NedS

lohr500 said:

Call me a cynic, but if a "cap" is set on the price per litre cost of oil and the actual cost falls below the cap, what stops the kerosene producers artificially keeping the price high?

Presumably most, if not all, of the suppliers we order our heating oil from must purchase their fuel from a small number of bulk refiners/distributors?

I can't help but think if a cap is set on oil, then we will end up paying the capped rate whatever happens to the price in the real world. Similar to what has happened with University tuition fees and the maximum student loan tuition fee loan value. 

Is there any Ofgem equivalent monitoring heating oil pricing to ensure fair play from the refiners? 

I think you may be right, and it would be far easier to implement a scheme whereby they just hand out a set figure to all qualifying households given they need to implement something quickly.
The downside of a flat rate scheme is that it is not "equivalent support" whereby under the new Energy Price Guarantee, those who use more energy receive more help. Under a flat rate scheme a 2 bed semi would receive the same support as a 6 bed country mansion.

Getting_greyer

lohr500 said:

Call me a cynic, but if a "cap" is set on the price per litre cost of oil and the actual cost falls below the cap, what stops the kerosene producers artificially keeping the price high?

Presumably most, if not all, of the suppliers we order our heating oil from must purchase their fuel from a small number of bulk refiners/distributors?

I can't help but think if a cap is set on oil, then we will end up paying the capped rate whatever happens to the price in the real world. Similar to what has happened with University tuition fees and the maximum student loan tuition fee loan value. 

Is there any Ofgem equivalent monitoring heating oil pricing to ensure fair play from the refiners? 

I put a post the other day in which one of my concerns was that a price cap may simultaneously create a price floor. I'm now less convinced. 

If a cap is above the wholesale price then there is opportunity through competition for suppliers for lower retail price.  For all to make a price floor at the cap would mean collusion which would mean fines for suppliers (whether that's incentive enough is another matter).  

If the cap were below the wholesale price then having it is a price floor but would save consumers from even higher price. 

With the wording discretionary fund, I had some idea that meant cash/oil/lpg from gov to consumer. Maybe you use a receipt to claim £x per litre or even claim back the price of ylitres per household either as cash or from maybe council. Tbh I can see lots of scope for this to be a nightmare politically.

So I'm thinking maybe a quite highish cap with the differnce in capped and real retail price claimed back by the suppliers. With the "equivalent benefit" to consumers being the cap saving you costs in the event wholesale price rises.

QrizB

NedS said:

So lets look at some prices and work out what "equivalent support" may look like:

A litre of kerosene produces 10.35kWh of energy

Under the April to Sept price cap, gas was priced at 7p per kWh. The old price cap for April to September was set at £1971/year and will rise to £2500/year for the average consumer - an increase of 26.8%.

If we apply a 26.8% increase to the cost of gas under the April price cap (7p) we get a price of 8.9p per kWh

An equivalent price for oil would be 92p per litre giving a comparable 8.9p per kWh, which is not far off the current price, so I think it is unlikely us oil users would get much help at present, but may do so if the price of kerosene were to rise sharply.

The factsheet here:
https://www.gov.uk/government/publications/energy-bills-support/energy-bills-support-factsheet-8-september-2022
... gives a capped gas price of 10.3p/kWh. By your calculations that's equivalent to 107p/litre for kerosene, and (assuming propane at 7.07kWh/litre) 73p/litre for LPG.

wwally said:

Gut feel suggests that oil is more inefficient (ie less combustable) than gas

Oil boilers are just as efficient as gas ones.

Here's the database entry for a Grant oil boiler:
https://www.ncm-pcdb.org.uk/sap/pcdbdetails.jsp?pid=26&id=015921&type=105&mid=000048

And an example Worcester gas boiler:
https://www.ncm-pcdb.org.uk/sap/pcdbdetails.jsp?pid=26&id=018911&type=105&mid=020051

On paper, in most respects the Grant is slightly more efficient than the Worcester.