Sunday Telegraph front page marks return to green taxes debate
‘Green energy to cost consumers £400 over next five years’, claims the front page of the Sunday Telegraph this weekend. Newspapers’ efforts to highlight the amount we pay for so-called green policies had fallen out of fashion of late. But a new-found focus on the cost of living appears to have resuscitated an old favourite. We take a look at the new claims – and what a refocus on energy bills may mean for the climate debate.
Labour leader Ed Miliband recently promised to freeze energy bills to help households cope with the country’s “cost of living” crisis. Energy companies countered with the suggestion that if only the government stopped requiring payments to help cut power sector carbon emissions, bills would be lower. It looks like the current government may be thinking the same way: Rumour has it the Treasury wants to find a way to cut ‘green taxes’ on consumer bills, too.
Enter free market campaign group, the Taxpayers Alliance, whose analysis gives the Sunday Telegraph its headline. It says the government’s policies will fund renewable generators to the tune of £22 billion in the coming years. The Sunday Telegraph calculates that up to 2019, households will pay £425 on average towards this total.
£400 per household – over five or six years
First, let’s look at the Sunday Telegraph’s number. £400 per household seems like a lot – but how does that break down?
The Sunday Telegraph’s £425 figure comes from adding up all the money households will pay toward contracts for difference.
The analysis gets a bit confusing when you compare the headline and first sentence of the article: the online headline claims households will pay £425 over five years, while the first sentence puts it at six years:
“‘Green energy to cost consumers £400 over next five years’
“Every British household will pay an average of more than £400 in higher bills over the next six years to pay for subsidies under controversial Government plans to hit green power targets.”
The Taxpayers Alliance calculates households could pay an average of £85 a year over five years to support renewables (or around £70 if it’s over six years) through the renewables obligation and its new funding mechanism – contracts for difference (CFDs) – when they’re introduced in 2016.
But will the shift to CFDs mean households will end up paying much more than they do already?
The government says about £63 of a current bill goes towards supporting renewable electricity generation.
So according to the Taxpayers Alliance, households could be paying between £7 and £22 more than they currently do to support renewable generation once the new mechanism comes in. It’s a bit more, but a rather less scary figure than the £400 topline implies.
Even assuming that the wholesale electricity price stays low – as Taxpayers Alliance does – we won’t pay much more in the next few years for renewables subsidies than we do at the moment.
Beyond the strike price
But while the Sunday Telegraph claims to reveal the “true cost” of green subsidies, it’s only looking at part of the picture. The energy system – and what consumers pay – is the product of a complicated balancing act between a variety of factors.
Take wholesale prices, for example. The Department of Energy and Climate Change (DECC) says the wholesale price of electricity currently accounts for about 37 per cent of a household’s annual electricity bill – around £213 – while the costs of supporting renewable energy account for about 14 per cent.
Ramping up renewable generation could mean the wholesale price of electricity is lower than if the UK continues to rely on fossil fuels, the government predicts. That’s because wind and solar farms don’t have any fuel costs, pushing the price down. Meanwhile, the government expects both coal and gas prices to continue to rise in the coming years.
As such, more renewable generation could mean wholesale electricity is cheaper than it otherwise would have been – not to mention helping to insulate the UK from volatile fossil fuel prices – with those savings passed on to consumers.
Herein lies a problem for the government. The new CFD mechanism means renewable generators get paid the difference between the wholesale price and a guaranteed price – known as the strike price. But if renewables force the wholesale price down, consumers could see that part of their bill go down, only for renewables subsidies to increase.
So the overall impact of the new mechanism depends on the hard-to-predict changes in the wholesale price, not just the level of the strike price the government has agreed with generators. The Sunday Telegraph misses this more nuanced point because it’s focus is squarely on what consumers pay out, not the energy system as a whole.
Bigger picture
Ed Miliband’s bill freeze promise inevitably means increased scrutiny of energy costs. And by designing a support mechanism tied to the wholesale price of electricity – the very thing renewables are expected to make cheaper – the government makes it easy to criticise the cost of low carbon energy.
Labour has arguably judged this bit of energy price populism better than the Sunday Telegraph and the government. Our polling suggests people are more likely to blame energy company profits than renewables investment for rising energy bills.
A month ago, energy coverage seemed to have broadened to include important debates on infrastructure and the future of the energy system as a whole. But if the Sunday Telegraph front page is an indicator, the debate over whether ‘green taxes’ put up energy bills could again be a defining feature of the energy and climate debate.