What's really hiking up our energy bills?

Paul Steedman

06 September 2011

The Telegraph started the week leading with a shocking story. Green taxes will apparently be adding £300 to your energy bills by 2020. Yet again those crazed eco-warriors at the Department of Energy and Climate Change (DECC) are trying to burn a hole in your wallet. Something must be done!

According to the Telegraph's story, David Cameron's adviser Ben Moxham (ex-BP) suggested that new policies proposed by DECC would add 30 per cent to bills in the next decade, compared with leaving things as they are. DECC's own estimates that bills would in fact be lower, as people used less energy, were apparently dismissed as "unconvincing".

Having just ditched my old electricity and gas suppliers after the latest round of energy company price increases, which Consumer Focus says will add nearly £200 to average bills this year alone, this seemed pretty worrying to me. The last thing I want to be doing is campaigning to make people, least of all me, less able to manage their bills or heat their homes.

So I did some digging.

The Telegraph's piece is the latest iteration of a recurring story in the rightwing media that the Coalition's 'green' agenda is an expensive bit of posturing at high cost to ordinary people. Say it enough and it sounds plausible, but it's highly misleading, for a number of reasons:

1. The recent purse-popping energy bill hikes have been driven by fossil fuel prices, as Moxham's advice makes clear. Around three-quarters of our electricity comes from burning coal and gas. Between 2010 and 2011 the price of coal for power stations increased by 32 per cent, whilst the price of gas increased by 28 per cent. 5.5 million households now have to spend more than 10 per cent of their income on energy bills, a problem made worse by our desperately heat-leaking housing stock.
2. Without new policies we're likely to see even more of our power come from gas. But North Sea oil and gas are running out - we are becoming increasingly dependent on expensive fossil fuel imports. The figures in the Telegraph article assume that by 2020 gas prices follow DECC's 'middle scenario' and will be around 60p a therm, but we're already seeing gas trade at more than 64p a therm and the smart money is on further rises. And if gas becomes more expensive than the mid-range estimate assumed by the Telegraph, then leaving things as they are and becoming more and more dependent on gas, will lead to much higher bills by 2020. 'Green' energy bills will be even cheaper in comparison. Scrapping 'green policies' means more pricey gas - it's not the route to a low-cost future.
3. The new policies supposedly adding to bills aren't just to do with cutting carbon. With many of our existing plants coming to the end of their life over the next ten years, we're going to have to invest money in building some new ones, climate change or not. The big energy companies have sat back and watched the money roll in, rather than reinvesting heavily over the last decade. So bills will inevitably rise, regardless of whether investment is in clean green wind, wave and tidal or in dirty gas; it's simply nonsense to say all the costs are 'green taxes'.
4. We fervently hope that Cameron's adviser is wrong, but we do share his scepticism about whether enough people will take up energy efficiency measures under the Green Deal. Fundamentally though this means we need more action on energy efficiency, not simply giving up on it - and so we agree with Moxham there needs to be significant further incentives to drive take up. But DECC can only do so much without the cooperation of other departments. The Chancellor must release funding and Eric Pickles and Vince Cable at the Communities and Business departments respectively must agree to regulations.
5. Finally, the Telegraph's £300 figure looks like a highly dubious interpretation in any case. Moxham's letter refers to a 30% rise, but only on electricity, rather than on a dual fuel energy bill - meaning a cost of £135.

So there we have it. Cameron's adviser says electricity bills could cost £135 more than business as usual in 2020 - but only if there is no energy saving, and only if gas prices don't rise. The latter is unlikely, and if the Government gets serious, the former is unlikely too.

If the Government gets its Electricity Market Reform right, bills will be lower than just letting the 'Big Six' energy companies lock us in to more expensive, imported fossil fuels. So I'll keep campaigning for energy efficiency and renewable power with a clear conscience - and a happier wallet.

Paul Steedman, Energy Campaigner