A report from the Resolution Foundation highlights the potential for UK energy bills to skyrocket by £29 billion per year by 2050 due to persistently high interest rates.
This projection stems from investments aimed at greening the energy system, which lock in high costs over the long term.
Green energy projects, being more capital intensive, are particularly vulnerable to fluctuations in interest rates, according to the study.
Jonathan Marshall, a senior economist at the think tank, emphasises that cleaner energy could be more affordable if interest rates return to previous lows but warns against banking on such a scenario.
The report suggests that if borrowing costs remain at 9%, it could result in significant financial strain for low income households, increasing energy bills by £29 billion annually compared to a borrowing rate of 5%.
The study indicates that despite the potential efficiency gains from green initiatives like electrification of transport, the high costs associated with energy infrastructure would outweigh these benefits.
To alleviate the burden on consumers, the report proposes alternative financing methods, such as government funding for new power networks, to distribute costs more equitably across income levels.
Jonathan Marshall, Senior Economist at the Resolution Foundation, said: “Britain needs to massively increase its electricity supply, and ensure it can be efficiently moved around the country, as we move towards a decarbonised economy of renewable energy, heat pumps and EVs.
“This will require tens of billions of pounds worth of investment each year – more over the next 15 years than insulating homes or buying electric cars. Cleaner energy could be cheaper energy, if interest rates return to the low levels seen during the 2010s.
“But we can’t count on that being the case. If interest rates stay high, energy costs will rise rather than fall in the years ahead. So now is the time for planning on how we deliver the energy investment surge while protecting lower income households, with a greater focus on price reduction in contracts, price protection for vulnerable households, and rethinking the role of the state as an investor.”
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