Green policies will put bills up £280, but bring them down by £450, says DECC
New analysis from DECC says that ‘green’ policies will put consumer energy bills up – and drive them down again. Despite rising energy costs, consumers will be net winners, the government argues, suggesting its policies will leave consumer bills 11 per cent lower in 2020 than they would have been in a ‘world without policy’.
The government estimates that measures designed to increase uptake of renewable power, nuclear and energy efficiency will add £286 to consumer energy bills by 2020. But the analysis also concludes that energy efficiency policies will reduce household consumption of energy, bring bills down again by an average £452 per household.
The figures in today’s report differ very little from an earlier analysis released by the government in November 2011, and have been widely reported. We will see a “£286 green tax on energy bills”, according to the front page of the Daily Mail today, while the BBC says the government’s energy policies will “reduce bill rises“. The Telegraph cite the Labour shadow-DECC team, who accuse the government of an ” underhand” attempt to mask the impact of their policies.
But what does the report say, in detail?
1. The impact of climate and energy policies on consumer energy bills now, in 2013
The government figures show that energy and climate change policies currently add £112, or nine per cent, to the average household consumer energy bill.
The average bill is broken down in this chart:
The document also breaks down the “costs of energy and climate change policies” further: Image - Capture2 (note)Breakdown of the cost of government climate and energy policies. The specific figures are: Energy Company Obligation (ECO) – £47; Renewables Obligation – £30, EU Emissions Trading Scheme (ETS) – £8, Carbon Price Floor (CPF) – £5, Warm Homes Discount – £11, Feed in Tariffs – £7, Smart Meters and Better Billing – £3
Energy minister Ed Davey emphasises that despite the media focus on subsidies for renewable power, more than half of the current amount goes to pay for energy efficiency policies. About £18 of the cost is currently for wind power – £9 for onshore wind and £9 for offshore wind.
2. Energy bills are going to go up whatever the government does
Bills are going to go up whatever happens, DECC conclude, as gas gets more expensive, and we pay to maintain the electricity network.
A spokesperson for DECC told Carbon Brief that wholesale energy costs are expected to add about another £100 to consumer energy bills between now and 2020, and rising costs of the electricity network another £50. In total, DECC says that without any government policies targeting energy bills, bills in 2020 would be £177 – or 13 per cent – higher.
Some network costs are to maintain the grid and replace ageing infrastructure. Some will be for upgrading the grid in order to connect new generating capacity – particularly wind farms and nuclear plants, and DECC doesn’t disaggregate these costs.
3. The impact of government’s policies on domestic bills by 2020
DECC says that by 2020, relative to now, the average bill will rise to £1,412 – 7.5 per cent above current levels.
But the analysis also suggests that energy efficiency policies will mean consumers use less energy, and this will mean that this bill will be lower than it would otherwise be – about 11 per cent lower in 2020.
This argument is laid out in this infographic, which helpfully capitalises ‘LOWER BY £166’.
The government made a similar rather clunky prediction in 2011. Back then it suggested that its policies could lower bills by seven per cent, not eleven. The analysis now takes into account the impact of new, more efficient boilers, and produces a more optimistic result.
It’s worth noting that this is an averaged projection – although DECC argues that nearly all households will experience some savings.
4. Will energy efficiency policies deliver?
DECC’s argument hinges on assuming that energy efficiency policies are effective. There are two main measures that need to work:
Products policy: About a third of DECC’s predicted savings come from EU Products Policy, which sets energy efficiency standards for electrical appliances. This means that as consumers replace their washing machines, televisions and lighting, the new models use less energy.
The limitation here is obviously that the savings don’t kick in while consumer are using old appliances. DECC says that it is using standard figures for the rate at which consumers tend to replace electronics. The Telegraph isn’t convinced – arguing that
“…millions of households, especially older people, will not necessarily be replacing their appliances within the next seven years.”
Household energy efficiency measures and the Green Deal: Another 30 per cent of the savings come from government policies aimed at encouraging householders to improve the efficiency of energy use in the homes – for example through loft or cavity wall insulation. These include the older government policies and the government’s new programme the Green Deal.
Ed Davey told Carbon Brief yesterday that the government’s predictions on the savings its policy measures will deliver are “conservative” and “on the cautious side”.
But the Green Deal has been heavily criticised as over-expensive and over-complex. At the very least, it’s a very new policy, and questions hang over what kinds of energy savings it will actually deliver.
DECC’s argument is that although bills are going to go up regardless, we’ll be better off with their policies than without them. The various parts of their projections are somewhat confusing, but essentially it comes down to quite a simple question – can the government’s energy efficiency policies deliver?
Today, the Times is skeptical, and gets to the key issue – can the government deliver the energy efficiency measures it needs to in order to see a net reduction in energy bills? The paper quotes Andrew Warren of the Association for the Conservation of Energy, who says:
“Of course these savings are do-able. But are we on target? It’s not desperately clear that we are. The calculations assume that new products are purchased and that people do not stagger on with their old boiler. It’s quite difficult to see what the stimulus will be to deliver these savings.”
Energy is likely to get more expensive in the future whatever happens. But if the government can’t encourage us to reduce the amount of energy we use, there won’t be much to limit the effect of future price hikes.