Controversial green taxes will save consumers money in the long term
Electricity prices are at the centre of the energy policy debate. Spearheaded by Labour’s commitment to a 20 month price freeze if they win the next election, followed by SSE’s recent announcement of an 8.2% electricity rise from November and the confirmation from British Gas that it will increase electricity prices by 10.4% and gas tariffs by 8.4%from next month. This week nPower became the latest, with a 10.4% dual fuel rise. The remaining ‘Big Six’ companies (E.ON, EDF Energy and Scottish Power) are expected to follow suit.
According to DECC, wholesale gas and electricity costs currently make up the largest proportion of an average household’s energy bill (around 47% in 2013) with network and metering costs representing 20%, other supplier costs and margins 19% and VAT 5%. The costs of green policies are estimated at around 9% of the same bill.
Considering that the largest contributor to our energy bills is the wholesale costs of energy, it would seem essential to control the ability of a few companies to dominate the energy market and pass-through large fuel price increases directly to end consumers. Instead, policy makers are hoping to keep bills down by focusing on whether green policies represent value for money.
Energy bills are likely to continue on an upward path as a result of rising wholesale energy and network costs
Energy bills are likely to continue on an upward path as a result of rising wholesale energy and network costs. The green policy proportion of our bills will also increase (up to 30% by 2020 estimated by DECC) as greater support is afforded to low carbon investment and energy efficiency measures through for example the Energy Companies Obligation and the Green Deal.
But, in contrast to the other elements that make up our bills, these green measures will deliver increasing savings by curtailing demand and offer end users protection against fossil fuel price increases. Fossil fuels are becoming more costly but the cost of renewables is falling. Also, if fuel prices rise faster and further than predicted, the impact of green policies on households and businesses will be reduced and their benefits enhanced.
Let’s hope that the current debate shifts its focus to more appropriate issues such as the structure of the market and ensures that, in the long term, we continue to diminish our reliance on expensive fossil fuels otherwise the biggest losers in the end will be us and the environment.
Isabel Boira-Segarra is renewables sector leader at EC Harris