27 Mar 2013

Ed Davey: green taxes will save us money in the end

Doing nothing to raise money for renewables would lead to higher bills insists Energy Secretary Ed Davey, but consumer groups call for more government action to tackle rising energy costs.

Will green energy save us money in the long run? (Getty)

A report published by the Department of Energy and Climate Change (DECC) shows that 85 per cent of the average household bill cannot be controlled due to spiralling wholesale energy costs, network, transportation and distribution costs. But the government says with more home insulation and more efficient boilers by 2020, average household bill will be £166 or 11 per cent lower than they would been without the cushion effect of green measures.

Consumers are looking for a ‘do more’ strategy Audrey Gallacher, Consumer Focus

At a time when families and pensioners are struggling and are seeing their incomes squeezed, the government has been criticised for expecting people to shell out thousands of pounds on new TVs, fridge freezers and washing machines and other environmentally friendly products in order to reduce energy consumption. Audrey Gallacher, director of energy at Consumer Focus said:

“Consumers have had to weather any number of energy price storms over recent years, and although the cushion effect set out by DECC is welcome, consumers need something more substantial to soften the impact of continually rising energy prices. Government policies will provide consumers with a level of protection compared with a ‘do-nothing’ approach, however consumers are looking for a ‘do more’ strategy.

“We’ve argued that government should use the billions they will raise in carbon taxes to deliver a more ambitious programme to insulate our homes to higher standards, saving the poorest in society money on their bills, cutting carbon emissions and creating economic growth quickly and across the country. Reducing demand is quicker, cheaper, more sustainable, and solves the problem at source.”

Greenpeace’s policy director, Doug Parr, said: “This report demonstrates that green policies are not causing rocketing household bills and they will not do so in future. With the right investment, UK clean energy will only get cheaper. The same cannot be said of gas.”

Unrealistic assumptions?

According to DECC’s analysis the average household’s dual fuel bill could be expected to be £1,496 without government policies and £1,331 with energy-saving policies 2020. But critics say the new figures rely on the wholesale prices of gas today remaining unchanged until 2020.

Delivering the report, the Energy and Climate Change Secretary of State Ed Davey said: “Global gas price hikes are squeezing households. They are beyond any government’s control. The analysis shows that our strategy of shifting to alternatives, like renewables, and of being smarter with how we use energy is helping those who need it most to save money on their bills.”

Read more: Why our energy bills keep going up - the key questions

Mr Davey disputed that Britain was at risk of the lights going out with only an estimated two days’ gas supply stockpiled. He added: “It is true that supplies are relatively low, but that is because it is the end of winter. It is what we expect. It does not mean we are running out of gas.”

The DECC report highlights the fact that the wholesale cost of energy is largely determined by international fossil fuel prices, which is by far the biggest part of all our fuel bills and accounts for nearly half (47 per cent) - £598 - of what the average household has to pay this year. 

The UK also relies heavily on imported shipments of gas from continental Europe and Gulf states like Qatar. The recent cold spell has put extra strain on supplies and in turn has left Britain vulnerable to price spikes on the international market.

Government policies on energy and climate change account for 9 per cent, or £112 of this bill - with £30 of this spent on renewable energy policies, including £9 on on-shore and £9 on off-shore wind.

Wake-up call

Renewable UK’s chief executive Maria McCaffery said: “These official figures prove that when gas prices shoot up, the fuel bills that land on the doormats of over 26 million British households go through the roof. During this cold weather, today’s report offers a very timely reminder of the high price we’re all having to pay for our dependence on eye-wateringly expensive fossil fuels.

“The figures are quite clear for all to see – if we switch to more renewables to generate electricity, the cost is much lower. We can control that cost rather than leaving ourselves exposed to the wild fluctuations of international fossil fuel prices. Home-grown renewables such as wind gives us a very important asset: energy security at a price we can predict.”

The report added that businesses could expect much bigger rises in energy prices without the low-carbon cushion. Mr Davey said: “The picture for business is less positive, which is why our new proposals to exempt and compensate the most energy intensive industries from certain policy impacts is crucial. Nothing would be gained from forcing industry, jobs and emissions abroad.”

Steve Radley, policy director at EEF, the manufacturers’ organisation, said: “This is a wake-up call. Policies are already adding 30 per cent to business electricity prices, and this will rise to 50 per cent by 2020 and 70 per cent by 2030.

“Measures to shield the most energy-intensive industries from a portion of the costs will make a difference but, unless we get a grip on spiralling policy costs, steeply rising electricity prices for the rest of the sector risk making the UK an increasingly unattractive location for industrial investment and undermining efforts to rebalance the economy.”