How much do renewable and energy efficiency policies add to energy bills?
David Cameron and Ed Miliband spar over energy bills and green costs.
Three of the ‘big six’ energy companies – SSE, British Gas and Npower – have announced price rises this month. Expect the other three to follow suit over the next few weeks.
Energy companies are blaming a chunk of bill increases on government measures aimed at supporting energy efficiency and renewable power: so-called ‘green’ charges.
So how much do green charges add to energy bills? It turns out that the power companies and official estimates disagree.
Green charges – figures from government and regulator
Energy regulator Ofgem estimated at the end of 2012 that environmental and social levies added about £107 to consumer bills – making up eight per cent of an average 2012 annual bill.
The Department for Energy and Climate Change (DECC) set the figure slightly higher in March 2013. It estimated the levies accounted for £112, or nine per cent of an average bill.
These figures are the most recent available, but are also slightly out of date, as they don’t account for recent price rises.
But the government’s climate advisor, the Committee on Climate Change, estimates green charges will grow by about £10 over the next twelve months.
Green charges – figures from the Big 6 power companies
Energy companies have highlighted the effect of environmental and social policies when justifying price rises. The head of SSE called for a “ national debate” on the green agenda – and appears to have got one.
The three power companies that have recently raised prices say green measures cost more than official estimates.
Here’s are environmental and social costs as a percentage of the total bill, for each of the power companies that have announced price rises recently, as well as Ofgem and DECC:
The same figures in pounds:Image - Chart _1 (note)
And here are the same figures as part of the total average bill for each company, alongside Ofgem and DECC estimates:
NB: For previous two charts, see the note at the end of the blog.
The power companies’ assessment is that in 2013/14 environmental and social measures will account for 10-12 per cent of bills. That’s between £122 and £162 of an average bill, and between £10 and £50 higher than DECC’s estimate for 2013.
What about the recent price rises?
Energy companies say green measures are partially to blame:
The CCC’s estimate is that green tariffs should add just £10 more this year than last.
So the power companies broadly disagree with the CCC. They also disagree with each other. SSE suggests green charges will go up by £15, while British Gas says they will go up by £50.
Why are the estimates different?
The government accuses energy companies of over-estimating environmental and social charges, particularly the costs of its energy efficiency policies.
The Energy Company Obligation – a government measure requiring energy companies to subsidise home insulation for low-income households – will add an additional £40 to bills next year, according to British Gas.
Company data released by DECC shows ECO shouldn’t be any more expensive to deliver, the government says. Energy minister Ed Davey says ECO’s costs are in line with those of the schemes it replaced and “there should be no need for any increase to consumer bills due to ECO.”
The lack of consistency between the energy companies’ estimates could mean they’re talking up the costs. Alternatively, the energy companies could be telling the truth about how much ECO costs – the figures may differ because some companies are implementing the scheme more efficiently, and therefore more cheaply.
DECC’s data on ECO suggests some companies are delivering on ECO more effectively than others. This could mean that costs rise for some companies, but not for others.
The government hasn’t yet released any data on how much it thinks government levies will add to bills overall over the next twelve months.
Given David Cameron’s announcement this morning that the government intends to review the tariffs, perhaps it isn’t going to.
The main point of contention is between the energy companies – who say that green measures will add up to £50 over the next year – and the Committee on Climate Change, which says the figure is just £10.
Note: Ofgem have slightly downgraded their estimate for how much energy the average customer consumes. Ofgem and DECC’s figures are based on Ofgem’s old estimate and the power companies’ figures are based on Ofgem’s new, lower, estimate for total consumption. This means the bill assessments from Ofgem and DECC in the second and third charts aren’t directly comparable with those from the power companies. But the relative assessments (of percentages – the first chart) aren’t affected, as we did some conversion of figures to make them comparable.