Renewables policies will cost households £466 in 2020, report claims

Policies to support renewable generation will cost the average household £466 in 2020, a report published by the Centre for Policy Studies has claimed.

It called for a new energy bill to “prioritise costs, competitiveness and security of supply” as the Energy Act of 2013 is based on flawed analysis and is “already out of date” due to the Brexit vote and changes to fossil fuel prices.

If the cost of renewable subsidies covered by the Levy Control Framework (LCF) are in line with the £7.6 billion budget for 2020/21, then they will cost each household £281, both directly through their bills and indirectly through inflated prices for goods and services.

The paper cited an annual estimate of £5 billion by Renewable Energy Foundation director John Constable for network and other costs that would be incurred due to renewable generation. These would cost the average household a further £185 in 2020.

It noted that the LCF budgets have been broken in each of the last three years and that the Office for Budget Responsibility estimated in July 2015 that the budget is on course to be breached by £1.5 billion in 2020/21. However, the government has enacted changes to subsidies to try and address this issue in the meantime. 

Titled ‘are we heading for blackout Britain?’, the report also raised concerns over Britain’s security of supply following a series of closures of coal-fired power stations in recent years, which it partly blamed on EU emissions standards. It quoted a National Grid estimate of the de-rated capacity margin for the coming winter of 5.5 per cent, falling to just 0.1 per cent when the Contingency Balancing Reserve is taken out the equation. 

The Capacity Market was introduced by the government to “prop up the UK’s baseload capacity”, but the report said it has a flaw in that “it does not appear to be encouraging new gas-fired power stations into the UK’s electricity system”.

It urged the government to “be careful with interconnector policy” as the subsea cables cannot be relied upon to provide secure supplies; are putting downwards pressure on Capacity Market prices; and have an unfair advantage due to lower carbon prices on the continent. It also needs to address the “growing conflict of interest” relating to National Grid’s ownership of one of country’s main interconnectors.

“It has huge commercial interests in boosting the import of more and more foreign electricity through undersea interconnector, irrespective of the wider negative policy implications”, the paper said.

“The government should accept that intervention in the energy market is not working. The Hinkley Point nuclear power plant deal is bad value for money, and a combination of EU and domestic interventions are leading to mass closure of baseload power plants before replacements are ready,” it added.

“The government is attempting to centrally plan Britain’s energy market. Market mechanisms have been squeezed out of energy policy to the detriment of consumers. The government therefore needs to urgently review how its interventionist policies are damaging the UK’s energy policy, particularly on the carbon price floor and the promotion of renewables.”

Responding to the paper, director of the Energy and Climate Change Intelligence Unit (ECIU) Richard Black said: “Britain’s energy strategy does indeed need some reforming, but it’s a shame that organisations feel they have to resort to ‘Project Blackout Fear’ in order to get their points across.

“Critics of decarbonisation have been warning that ‘the lights will go out’ for 10 years, and one suspects people are a little confused given that the lights have stubbornly stayed on, apart from when storms bring down power-lines or sub-stations get flooded.”

He continued: “In the midst of change, things can look a bit messy – but done right, we’ll come out of it with a system that delivers reliable low-carbon power at low cost – and what look like subsidies now will turn out to have been prudent investments for the future.”

ECIU energy analyst Jonathan Marshall added: “The report uses an unsubstantiated estimated of balancing costs more than six times the widely accepted value, and apportions 100 per cent of policy costs to householders, when the residential sector accounts for just one-third of electricity use.

“This method inflates the real cost per household by a factor of four. It also ignores the fact that the expansion of renewable generation in the UK has seen average wholesale prices fall by around 25 per cent over the past five years, savings that can be used to offset subsidy costs and deliver good value to bill payers.”

The report included the disclaimer that it only represented the opinions of its authors and did not reflect the views of the Centre for Policy Studies as a whole.