How the Conservatives sextupled the CCCs estimate for green power costs
A Labour Party commitment to cutting greenhouse gas emissions from the power sector would add £125 to consumer energy bills by 2030, argues the Conservative Party. But the estimate relies on the assumption that the cost of wholesale electricity will remain the same – one of several factors that ensure the Conservatives’ figure is six times higher than a previous analysis suggests.
The figure appears on a new website from Conservative Party headquarters, which claims Labour’s proposed policies will cost voters more in the future:
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The £125 number isn’t referenced or explained on the website, which seems like a missed opportunity for a project that focuses so closely on facts and figures. Justice Secretary, Chris Grayling, cited the number in the Sunday Telegraph last week, but also failed to explain it. We take a look at the calculations behind the claim.
Where does £125 come from?
Labour has committed to a target that would require the UK power sector to become pretty much carbon dioxide-free by 2030 in its election manifesto. The party is following the advice of the Committee on Climate Change (CCC), the government’s climate policy advisor, which says decarbonising electricity generation the country’s best bet for reducing greenhouse gas emissions quickly, in line with its legal obligations.
The Conservatives say this commitment would add £125 to consumer energy bills between 2020 and 2030, however. A spokesperson from Conservative campaign headquarters tells us:
“[£125] is a Conservative party estimate based on government figures and a report commissioned by the Climate Change Committee [sic] in June. This report said that, by 2030, an extra £7.5bn a year in support costs would be needed to decarbonise the power sector. Based on DECC’s analysis of the cost to consumers of existing incentives, we estimate this would add around £125 to consumer bills.”
The report, from consultancy Poyry, predicts that environmental subsidies – financial support costs for nuclear power and renewable technologies, which are added to consumer energy bills – will cost £5.5 billion per year by 2020. If the government delivers on the 2030 decarbonisation target, the report says, this will rise to £13 billion a year by 2030.
The government is already committed to spending the money through to 2020, so according to this analysis the decarbonisation target will add an additional £7.5 billion in support costs between 2020 and 2030.
£7.5 billion ignores falling wholesale prices
The exact quote from Poyry’s report (p.99) is:
“Support costs are around £5.5bn in 2020 and £13bn in 2030. The projected resource costs are lower than the projected support costs in Figure 42 because they take account of the fact that deployment of low-carbon generation is expected to lead to lower wholesale electricity prices than would otherwise be the case”.
So Poyry’s report also predicts that increasing the amount of energy the country gets from renewable sources (particularly wind power) will reduce the wholesale costs of electricity – bringing the cost down again. The Conservatives’ calculation appears to ignore this.
From our read of the two graphs in the report, the falling wholesale price of electricity could cut the additional cost roughly in half:
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The Conservative spokesperson tells us:
“Our calculation only considered the support cost. This is because support costs, historically, have been direct levies on consumers – it is very difficult to predict what the wholesale electricity price will be, which is what the resource cost rests upon.”
The Conservatives are right that it’s difficult to predict what the price of electricity will look like over the next couple of decades. Poyry’s calculations rely on assumptions about the rising cost of fossil fuels and a future carbon price.
This does, however, illustrate the perils of just picking a number in isolation from the analysis that has produced it. The Poyry report was commissioned by the CCC. Chief Executive of the CCC David Kennedy, tells us that any calculation which doesn’t look at the costs of relying on gas instead is “meaningless”.
£7.5 billion is a high-end prediction
Kennedy also tells us the Poyry report was only looking at costs under “certain scenarios” that were “very expensive”. In particular, Kennedy says Poyry assumed a high level of carbon capture and storage (CCS) – which is an expensive technology.
The CCC commissioned Poyry’s analysis as a part of its research process – but in its own final report, published in May, the CCC assumed less CCS would be added to the system in the 2020s, so the scenarios it modelled were less costly.
Getting from £7.5 billion total cost to £125 per consumer
The Conservatives assume the support costs will be paid via the existing support regime known as Contracts for Difference – and calculate that £7.5 billion additional cost will add around £125 to consumer bills by 2030.
The country’s 26.4 million households only account for a third of the country’s total energy use. If households only bore a third of the costs, then adding £7.5 billion in support costs would add about £95 to bills. But in reality, it isn’t as simple as that – because for example energy intensive users will be exempted from some ‘green costs’.
The Conservatives say they have modelled their calculation on DECC’s analysis of the cost of existing incentives to consumers, which calculated that adding £7.6 billion to support costs by 2020 would add £132 to consumer energy bills. So this bit of the calculation could be right.
Six times higher
The Conservatives aren’t the only ones to estimate the cost of the decarbonisation target – the Committee on Climate Change has also done it. But the committee thinks the cost to the consumer will be six times smaller.
Using Poyry’s report as well as other analysis – and taking the changing price of electricity into account – the CCC estimated that an extra £20 will be needed per household in 2030 to pay for the decarbonisation target. This is six times smaller than the Tories’ estimate of £125.
The CCC’s assumptions can probably be questioned as well – predicting future energy prices is a pretty subjective exercise. But overall, the Conservatives’ calculation does seem to have some gaps in it – ignoring the caveats that were clearly highlighted in its source material.