166. How To Cut Energy Bills

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1:39Howdy and welcome to The Rest is Money with me, Robert Peston. And me, Steph McGovern. So we are talking a lot about energy at the moment. I mean, it's something everyone's talking about, isn't it? So we've brought back a friend of the show, Greg Jackson. You'll know him as the founder and CEO of Octopus Energy, which has grown from, it was kind of a challenger energy company, wasn't it? Not that long ago. And now it's something like one in four customers, energy customers in the UK are Octopus customers. So it's grown into a massive company. Greg's really big into the net zero renewables. So he's a man to talk to at the moment, isn't he?

2:16Yeah, he is. Every aspect of energy is relevant to our lives, whether it's what we have to pay for the blooming stuff, whether we think our businesses are being made desperately uncompetitive because what they pay for energy is way more than their overseas competitors. And then there is just the massive politics around this. We're talking to him shortly after Tony Blair has very publicly said that the government's approach to reaching net zero is irrational and that British people are losing confidence in the path to net zero. So a ton of stuff that we need to put to Greg. Yeah, here's our interview with Greg Jackson.

3:04Greg, lovely to have you back. So we last spoke to you in January 2024. I think we were talking about the zonal pricing there, which is one of the things we definitely want to talk to you about today. But there's loads in the press at the minute about energy, isn't there? So it's like, you know, all of the stuff happening in Portugal and Spain. And then the front pages as well today, dominated by Tony Blair, saying that he thinks the plan to get to net zero is doomed to fail, Robert, isn't he? Yeah, so his institute has published a bit of research called The Climate Paradox, Why We Need to Reset Action on Climate Change.

3:39He's written the foreword and it just begins by saying, people know that the current state of debate over climate change is riven with irrationality. As a result, though, most people do accept, he says, that climate change is a reality caused by human activity. They're turning away from the politics of the issue because they believe that the solutions, and when he talks about the solutions, he's really talking about what's proposed by this government. He is saying they are not founded on good policy. I mean, there are multiple aspects to this, but I suppose his fundamental argument is Britain on its own will not solve climate change.

4:25British people are being asked to make very big sacrifices, he says, in terms of their wallets to make the transition to net zero, while India and China in particular are pumping more and more carbon dioxide into the atmosphere. And he's basically saying British punters won't put up with sacrifices if it's really not going to make any difference to climate change. So I just wondered what you made of that big argument, since you are somebody who passionately believes that net zero is possibly the greatest problem we face as a world. Yeah, I mean, first of all, a lot of what he says there is right.

5:01the reality is that the way that many governments are going about climate policies for example has been putting bills up for energy not bringing them down by the way it doesn't have to be like that so you already mentioned zonal pricing and the reason that we talked about it all that time ago was that hard reforms like that are necessary to enable us to benefit from the renewables we've been building we're planning to build rather than for them to keep adding system costs now we'll know we'll get into that in in a minute but the big picture here is if you ask people to choose between their short-term energy bills and their quality of life and the longer-term challenge of tackling climate sooner or later more people will choose the former it is the job of governments and companies like ours to create the solutions that mean you get rid of that paradox and instead say, look, wind and solar should be the cheapest power we've ever had.

6:02It's just we haven't got the market for people to benefit from that. There obviously are costs in changing the way that you produce energy, the way you insulate your homes. All of that obviously brings some capital costs. One can't pretend those costs don't exist. But it does seem to me that the thing that I simply don't understand is why politicians aren't better at simply pointing out that the big reason why people's living standards were squeezed by the hike in energy prices was because we're too dependent on gas. and to be fair I do hear politicians say that a lot what they're not doing is they're moving that on to say we're in the tail end of that fossil fuel crisis there could be another any time we do have to escape from gas to be clear but what they're not good enough at doing is saying let's take the cost of driving around the world you've had fuel price protests over many years an electric car is up to six times cheaper to drive than a petrol car I haven't heard any politicians saying that and I think a lot of it is they are completely They're stuck in the treacle between the incumbent industries that create the jobs of today and the future industries that create the jobs of tomorrow.

7:16And you see that on things like the wrestling with the zero emission vehicle mandate. But I should say, Rob, very briefly, you talked about India and China. I know more about China than India, but I think the picture is similar. 60 % of all the renewables built in the world last year were built in China. But they are also expanding coal-powered electricity generation. They're really not. If you look, I think, by the way, the use of coal has peaked, right? There or thereabouts. The pace at which they're deploying these renewables, if you look at the charts, over the next few years, they're going to see a big decline in fossil fuel use, despite the fact that, tariffs aside, industrial outputs continue to grow.

7:56The reality is, when you're building the industries of the future, of course today you see the world as it has evolved so far but if you project these graphs forward the UK the West really miss risk missing out on the benefits of this stuff and I'm sure you're right actually I'm not sure you're right but let's let's let's take the argument that you're right that we are at peak coal fired electricity production in China nonetheless I am going to quote Sir Tony to you, since we started with Sir Tony. And Sir Tony says in his report, leaving aside oil and gas, in 2024, China initiated construction on 95 gigawatts of new coal-fired energy, which is almost as much as the total current energy output from coal of the whole of Europe, right?

8:48And so, yes, of course, of course, as you say, China, absolute world leader in both manufacturing and deployment of solar. Massive world leader when it comes to both manufacturing and deployment of renewables, but it's still spewing the most incredible amount of CO2 into the atmosphere. First of all, most of that CO2 is going to make stuff that we use, right? Back to the policy screw-ups that Tony refers to, that's a great example. Yeah. In that we've simultaneously told ourselves how well we're doing on carbon whilst exporting that manufacturing to other countries and then worry about the jobs, right?

9:23So he's quite right. The policies that we've pursued over time have led to these paradoxes. And I say it's worth just, you know, there is actually quite an interesting present example of the dilemma that this government faces on this issue of, you know, are you basically subcontracting to India and China those CO2 emissions that we're not doing because we're buying their manufactured stuff in the sense that we've got this India trade deal being negotiated. It's quite close to being finalised. And one of the sticking points is, the Indians are saying, you've got this border carbon adjustment tax that you're bringing in in 2027, which will whack up the price of stuff that we make in India when it comes into the UK.

10:11We want that tax to be deferred. And so we've got a government that's desperate to do a trade deal with India to show that, you know, it can do these trade deals in the wake of Trump's tariffs. And it's now having to decide, oh, should we stop penalising countries that spew CO2 like India? So you've hit such an important contradiction, which, as you say, punters out there, they know. You know, that's one of the reasons why, you know, I have some sympathy with the Blair argument that asking British consumers to make sacrifices so that the manufacturing jobs that do spew CO2 into the world continue to grow in India and China.

10:53I get why people are fed up with that. Well, so do I, and that's why I think they're right. And by the way, you could talk the same about, I think he talks about some of the tokenistic things. Like, we shouldn't tell people they can't fly, right? You know, aviation's responsible. I want it's 3 % or 4 % of emissions. What we should do is tackle the stuff that's easy and that can improve the cost of, sorry, people's quality of life and cost of living as we deploy it, like electric vehicles. And that's why, back to China, more than half the cars sold in China last year were electric. The Chinese state oil company reckons by 2045 they will have no petrol stations.

11:24Where's the bravery in the UK to be grasping this opportunity? But we, I've got an electric car and the infrastructure in this country for electric vehicles is terrible. You know, you do get genuine fear range when you're set off in your car. If you're going anywhere further than, you know, 30 miles or so, you start to panic that you're not going to be able to find somewhere where you can charge your car, where it actually works, or that there aren't other people there. You've got to add in the time for that. And also the kind of outset costs of buying an electric vehicle are still very high, aren't they?

11:53You see, that's how quickly the world's changing. Partly, by the way, because of those Chinese innovations. I'm not here to be the spokesman of China, by the way. I just want to talk about the opportunity we're missing, right? And very briefly on that opportunity we're missing. 20 years ago, 5 % of global clean energy patents were Chinese. It's now 75%, right? This is the patents for the systems we need to basically produce clean energy. For systems and products in clean energy, right? But on electric vehicles, for example, I think the premium now for an electric car, like headline price to buy an electric car is 6%.

12:25So it's within 6%. And for plenty of models, they're now launching the petrol and electric vehicle at the same price. I've had electric cars for seven years. I've barely paid for a service. Your brake pads don't wear out because you've got electric braking. There's no oil filters to change. There's just not stuff to go wrong in like a petrol car. And the fuel costs are incredible. You know, it's about five or six times cheaper per mile to drive an electric car as long as you can charge at home. By the way, people say to me, oh, but not everyone can charge at home. But no one can fill a petrol car at home.

12:55So, yeah, for two thirds of households, they can do this and it's cheaper. And Steph, you talked about the infrastructure. The infrastructure is getting better all the time. But I remember the early days of mobile phones, right? When a mobile phone was the size of a car battery. but you literally had to go to the gym to be able to carry it. And you barely had a signal if you stood on a hill. Now, by the way, parts of Britain are still bad on signal. But the point is the infrastructure develops over time. It does, but it's slow. It's really slow, isn't it? Considering how long we've had electric vehicles.

13:24We've had them five years in the UK, any reasonable scale. And there's still only 5 % of the fleet. We've just hit 100 ,000 public charging points in the UK. But for a lot of people, the typical UK daily commute is nine miles. So if you've got a car used for commuting and you can charge at home, an electric vehicle is an absolute no-brainer. And people are discovering that, which is why electric vehicle sales, despite the astonishing onslaught of misinformation from the dying fossil fuel industries, electric vehicle sales are the only ones that are continuing to climb. And that's as the infrastructure is building around us, as the cars are getting cheaper.

13:59And, you know, electric cars are such a great example of how this can be an upgrade for a lot of people. But what we shouldn't say is everyone needs to get an electric car right now. The point is, get one when it's right for you. And that way we take away this tension that I think, you know, Tony Blair quite rightly points to, that people feel they're being lectured and they've been told what to do and it's not going to make any difference. The reality is, I don't drive, okay, I'm pleased about the environmental benefits of an electric car, but honestly, I drive one because it's better. And pretty much anyone who comes with me agrees.

14:32I mean, the bit of it that I find, I suppose, a bit dispiriting is it's so obvious that a big part of economic regeneration, just in terms of the jobs that are created, some of the useful skills that will be fostered, would be a super ambitious UK wide. I mean, obviously, in these sorts of things, it tends to be devolved to the nations, but a massive program to make our houses more energy efficient. I mean, the waste of energy, because we have such low quality housing stock when it comes to energy efficiency, is a scandal. It may be. But honestly, again, Robert, let me be fairly realistic about it.

15:18most of the low hanging fruit in most houses is already in place like thick loft insulation right you know if you've got cavity walls reasonable insulation there to go beyond that on our retrofit stock there's some housing particularly some social and rented housing that is genuinely really poor but to go beyond that actually doesn't pay out the reality is the simplest even though if you go for example to the continent you will find most housing is so much more energy efficient than ours. We just can't get it up to that standard. Why? Just because we just have a history in this country of gerry-building.

15:52Well, we've just got cheaper built houses, right? I mean, but we've got what we've got. The reality though is that, for example, putting a heat pump in for most homes is a lot more cost efficient in terms of getting better value from your energy and emissions than, for example, a complex retrofit insulation problem. And by the way, just to finish on that, because politicians have kind of, for decades now, they've kind of had this view that they've got to improve houses. What we've done for heat pumps, until very recently we've said, if you want to put a heat pump in, in order to get the government grant, you've also got to do all the insulation changes, which means people don't want to get a heat pump because it's too much hassle.

16:28But you're saying the heat pump in and of itself given the current, the new of it, because they used to be fantastically inefficient, but the latest generation are basically pretty good in your view. A modern heat pump heats to 75 degrees C, hotter than a gas boiler. running costs on the appropriate tariff would be 300 quid a year less than a gas boiler we've got to keep getting down the cost of installation but honestly lifetime cost of a heat pump is getting close to that of a gas boiler So I've had this very conversation with one of my neighbours so we renovated our houses at the same time up in the north east and so started from scratch essentially with energy creation in the house so like, you know, because my house didn't have it was like from back in the 60s, 70s still haven't had an avocado bathroom just to give you the time era on it i hope you preserved it no i should have sold it on ebay surely they're cool again yeah i think they are actually they've come back around but the point is at that time i was like i want to do and be as efficient as i can with the house and and what can we do and one of my neighbors was like right we're gonna do the heat pump they got the grant for it and everything else i got talked out of it by um my cousin who was my builder and everything.

17:38And because he was saying it's a lot, there are a lot more hassle and everything else. And honestly, my neighbours had endless problems. And I know that's just an anecdote of two people, but they're constantly having to get it serviced. And for them, it's about the real liability. It's not about the fact that, yes, they're probably saving more money than I am, but they've just got this constant problem with, is it going to work when I need it to work? So you always get this, first of all, heat pumps are relatively new in the UK. So there's not as many installers who are good at installing them.

18:08And a lot of them, particularly when they're following that kind of excessively complex process I just talked about, they get installed as part of a huge job. But the reality is, first of all, I mean, we survey customers, right? And not just the ones where we've installed the heat pump, but we can see from people's energy bills who's got a heat pump and who's got a gas boiler. People with heat pumps rate their heating system more highly for comfort, reliability and cost than people with gas boilers. and across the country that is the norm and you've got to remember the gas boiler is not some beloved piece of sort of incredible kit a gas boiler is so unreliable it's about the only piece of home equipment where you take out a separate insurance policy and I think according to which the typical or the average insurance policy for a gas boiler I think is more expensive than the average insurance policy for a house right, that's how unreliable gas So should I retrofit and put a heat pump in my house?

19:02Should I get rid of the boiler and put a heat pump in? If you've got a great installer, you will typically find, on the whole, a house where the heat pump is going to be more comfortable, lower heating costs, and more reliable. The challenge is, if you just put a gas boiler in, again, back to Tony Blair's thing, I'm not going to fetishise getting a heat pump if you just put a gas boiler in, but as it starts to become unreliable, which they usually do over time, or you're unhappy with the way it heats the house or builds over time, then you should look at a heat pump. But for anybody who's got a house that's going to be easy to fit a heat pump in, and they're coming towards the end of the gas boiler, a heat pump it should be a very sensible alternative.

19:42Can I, before we move on to something which we're both obsessed with, and actually we talked to the energy regulator Jonathan Brealey about only a few days ago, which is, if you happen to have a plentiful source of cheap energy in your area where you live, should you get lower prices than people somewhere else, this issue of zonal pricing. So we do want to talk to you about this because you've been a proponent of so-called zonal pricing for really quite a long time. There's a couple of other things that I wanted to talk to you about. I'm going to see if I can find a quote that you gave years ago.

20:29Well, I mean, actually, your historic quotes are great. I could quote back to you loads of them because quite a lot of talking points. So actually, December 2024, you described the national grid and the grid system as a Soviet style power grid. And this is all part of the sort of zonal pricing thing. But this is the point I wanted to put to you. Tony Blair is a massive proponent of carbon capture and storage. So this is the system where you continue to use gas, for example, to power generation, but you somehow sequester the carbon dioxide and you bury it in the ground, and fingers crossed it stays in the ground forever.

21:16You describe that as like subsidising abacus makers so they can compete with pocket calculators. You're not a fan of carbon capture, are you? It's really expensive. The British government, I think, has a 22 billion programme to invest in carbon capture. Actually, I think we are more ambitious in this respect than pretty much any country in the world. You think that's the wrong policy? I don't think it brings bills down. And I think, back to Tony Blair's big observation, if we don't start bringing bills down through clean energy, then you get the backlash against the idea of net zero. By the way, some research we did said that I think 43 % of British people say they support net zero, 21 % oppose it.

21:55That's good. But if bills go up, support falls by two-thirds whilst opposition grows. So this is important. Now, on carbon capture and storage, it would be wonderful if it worked. Genuinely, absolutely. I wish it would. But there is... It's an umbrella in technology is what you're saying. Yeah, and by the way, billions and billions have gone into it around the world because the entire oil industry kind of hoped it would enable them to carry on doing what they're doing. If they could basically carry on getting oil out of the ground, burn it, and then bury the carbon cheaply and effectively, of course that saves their industry.

22:27And by the way, I would love to see them investing in it, and I'd love to see them paying for it. But if it goes on electricity bills, in fact, if we load up our already expensive electricity bills with yet more costs to pay for something which isn't proven at scale, appears, as far as I can tell, to be the domain of the fossil fuel industry, I don't think that's good for people. So let's put a counter-argument, right? Because I'm interested to know what you think about the conspiracy theorists here. About a week to 10 days ago, Spain had this historic moment where 100 % of its electricity came from solar and renewables, right?

23:02I think it's the first European country to have got, for a period, 100 % of its power from renewables, right? Fast forward to just earlier this week, you get the whole system collapsing. Now, the conspiracy theorists are arguing, we don't actually yet know the cause of this collapse, but the conspiracy theorists believe it is somehow connected to their over-dependence on renewables. What do you think of all that? You quoted me earlier talking about our national grid. By we, I don't mean the company national grid, which is a different entity and perhaps moving quite quickly. You mean the infrastructure?

23:34I mean just the infrastructure. Yeah, it's been Soviet style. That's the same for most countries. And if we look at the Spanish grid, there's a huge lack of what we call flexibility on it. There's very few big-scale batteries. There's very little interconnection with other grids. I think only 3 % of their power can come from overseas. So what they've got is they've got a very rigid, inflexible grid. And that makes it very hard for it to absorb shocks. Because they don't have the inertia that you get. Inertia was the old way of keeping a grid stable. There are lots of new ways of doing it. Do you want to explain?

24:09Because people like me don't know what you mean by inertia. Because the whole job of the grid is to keep things at a frequency, isn't it? Of 50 hertz. and then if it looks like it's going to drop, then you use the inertia of other bits you've got in the system to keep it at that frequency of 50. And what apparently had happened in the Spanish one, it dropped to 49. So when you say inertia, you sort of mean capacity that's not being used at any particular moment and that then automatically kicks in, does it? Well, the inertia is basically, traditionally, our electricity was generated by great big spinning magnets.

24:41Yes, and they'd carry on. And that's the physics. Yeah, and basically, the interesting thing is, it does a big load on the grid. then the frequency drops from 50 hertz to maybe 49.9 and that creates more pull on those magnets which speeds them up and so it kind of automatically maintains itself. In a renewable grid you don't have that big spinning load. They just stop. So that's other ways of doing it. Is batteries the way to do it then? Yeah, I mean the UK's got a lot more grid scale batteries than Spain for example. But the other thing is you need a lot of the ability to absorb shocks. If you think in the old days we thought that the way to make a car safe was just to add more and more steel And then we discovered crumple zones.

25:18The same with buildings. The way to survive earthquakes was by having some flexibility as well as stiffness. And in the same way, our grids need flexibility to absorb this stuff. Now, by the way, taking the UK, Octopus alone has, I don't know what, a quarter of a million electric cars, which when they're at home and plugged in, we're controlling the charging. That's 1.7 gigawatts. So they're customers with those cars. Yeah, they're all customers' cars, right? Right. But the point being, when they're charging, we've got 1.7 gigawatts where each individual car can be turned on and off to help balance the grid.

25:50So when we were talking about electric cars earlier, one of the interesting things about them is it's not just great for customers. They're actually really important for balancing the grid. So resilience. For resilience, yeah. Because you choose when you charge the car. Yeah. Basically, a driver gets home, they plug in, and as long as they've got a full battery by 7am or whatever, they're happy. Yeah, we do that in our house, basically. By the way, it reduces your cost dramatically. because it's very sympathetic to the grid. Yes, because you pick the time at which it's cheapest. So if there's a surge somewhere else, you can basically reduce the call on the power for the charging.