Burn, baby, burn - We’re meant to be saving energy, so why does it get cheaper the more you use

In the great energy debate, the only thing everyone seems to agree on is that we should use less of the stuff. The government is committed to a 60% reduction by 2050 and we all have a moral obligation to switch off our computer monitors at night.

Yet with most domestic and small-user tariffs in this country, the cost of energy reduces as we use more of it. Ofgem, the energy regulator, claims: “We encourage development of market mechanisms to value and reduce carbon.” However, this perverse charging system is standard practice and the regulator shows no sign of even gently nudging the industry away from it.

The distributing companies would probably claim that the extra cost of the initial energy units is the equivalent of a standing charge and is “used to cover costs like meter reading, maintenance and the cost of keeping you connected to the network” (that, at least, is the explanation given on the Energywatch website). This would be equivalent to the supermarkets adding on a charge every time we visit them: to pay for the cost of the checkout till and keeping their buildings and vehicle fleet in running order.

The current tariff system means that if you live in a very energy-efficient home or have a frugal and low-energy lifestyle, and should generally be thanked for so doing, you are charged almost entirely at the top rate for your energy. On the other hand, if you install a wind generator, photovoltaic panels, solar water heating or any of the other microgeneration technologies available, you probably are only reducing the top (and cheaper) end of your bills. This will make the payback time on the equipment even longer than it might have been with a tariff that discouraged excess energy use.

And if you have been really responsible and generated enough energy from your roof array or CHP unit to consider exporting electricity back into the grid, you will find the price per unit paid back is even lower. This is despite the much greater value of a kilowatt-hour of energy generated locally, compared to a kilowatt-hour that comes from the power station and will be partially dissipated during the journey.

But at least this problem is recognised and Ofgem is on the case. It says it is “working to break down the barriers which may prevent the widespread use of microgeneration units in homes” and “it is for government to decide if rules are needed to determine how much microgenerators should get paid for surplus electricity”. If this is so, we need an early government decision so it becomes economically sensible to install microgeneration capacity in all the new homes now being built.

In the energy review earlier this month, the DTI said it planned to “transform the role of energy supply companies so they have strong incentives to work with their customers to get more out of the energy we use”. But it is difficult to believe the companies will ever be very interested in helping the consumer to use less of the commodity they sell, despite all the energy efficiency tips on their websites.

Schemes have been proposed, particularly by the Rocky Mountain Institute, for companies to sell us efficiency instead of energy. This may be the way forward but, because of the structure of the UK’s industry

and the presence of a regulator, there is another much simpler measure to try first.

Energy should be priced progressively so that the more you use, the more expensive it gets, in a series of rising tariffs. Adjustments may have to be made in child allowance and income support for large, low-income families, but the principle would stay the same: saving energy should be economically sensible.

In addition, any energy sold back to the grid should be allowed to balance other use – so the meter would run backwards as well as forwards – or should be priced the same as a medium or high electricity tariff.

Electricity generation produces 37% of the carbon entering the atmosphere in the UK and it is essential that all means are sought to bring down emissions from whatever source.

Despite the government interest in reviving the nuclear option to cut emissions, the simplest way is to save energy rather than to generate it. But neither the goodwill of those who voluntarily save energy nor enforcement through ever-stricter regulation will make an adequate difference.

It is most likely to be achieved through market mechanisms. Reversing the current tariff systems looks like a good way to start, by pricing this essential, but dangerous, commodity realistically.