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‘Excessive’ green taxes are forcing up fuel bills, official review finds

October 26, 2017

By Paul Homewood

 

Dieter Helm’s report about energy pricing is now in, and it makes highly embarrassing reading for the government.

This Telegraph article is intriguingly co-written by our friend Jillian Ambrose and the Political Editor, Gordon Rayner (the latter probably keep her honest!)

 

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Consumers are paying too much for their energy because of “excessive” green taxes added to bills, a damning Government-commissioned report has found.

 

A series of “spectacularly bad” decisions by ministers have “unnecessarily burdened” households and businesses with higher green energy subsidies than necessary, according to Prof Dieter Helm, of Oxford University.

The cost of renewable energy – as well as gas, coal and oil – has fallen but the benefits have not been passed on because ministers locked the taxpayer into long-term contracts that overestimated those costs, Prof Helm found.

Green taxes will cost the average household almost £150 from next year, according to energy firms.

Prof Helm said this was “significantly higher than it needs to be” to meet the Government’s objectives of cutting down on the use of fossil fuels and promoting renewable energy.

He was asked to undertake the research after Theresa May, the Prime Minister, vowed to tackle “rip-off” bills. However, the industry expert placed the blame on the Government’s own policies.

“Significant institutional reform” should be brought in to reduce the Government’s role and allow the market to function efficiently, Prof Helm said.

 

Professor Dieter Helm

Professor Dieter Helm was asked to undertake a forensic probe into each element of the energy system

 

His Cost of Energy Review said: “Each successive intervention layers on new costs and unintended consequences. It should be a central aim of Government to radically simplify the interventions, and to get Government back out of many of its current detailed roles.”

Green energy taxes, which were introduced as part of the 2008 Climate Change Act, have caused controversy ever since because some MPs regard them as “regressive”, penalising those who can least afford them.

There are also divisions over whether the levies are justified, particularly with respect to subsidies for wind farms, with opinion split over whether they are an unnecessary blight on the landscape.

In August the Office for Budget Responsibility warned that the cost of the subsidies would more than treble over the next five years, from £4.6 billion in 2015-16 to £13.5 billion in 2021-22.

The costs of “decarbonisation” account for around 20 per cent of typical electricity bills, according to the report. Consumers will have paid well over £100 billion by 2030, and Prof Helm says that “much more decarbonisation could have been achieved for less; costs should be lower, and they should be falling further”.

He said ministers’ forecasts of future energy costs had been far too high, but “many of these excessive costs are locked in for a decade or more, given the contractual and other legal commitments governments have made”.

In particular contracts had been given to “early stage” wind, solar and biomass companies whose costs had since been hugely undercut by other firms using much more advanced technology, Prof Helm said.

He said energy firms should be forced to declare their profit margins on bills and also called for the cost of existing contracts to be ring-fenced into a “legacy bank” and shown separately. The legacy charge should not be paid by heavy industry, he suggested.

Gareth Stace, director of UK Steel, said a “persistent and sizeable gap” existed between energy costs in Britain and competing markets.

The review is the second major report to criticise government energy policy in recent years after the Competition and Markets Authority dismissed many of the early claims of market abuse made against energy companies. Instead it warned that many policy decisions had harmed competition.

Greg Clark , the Business and Energy Secretary, said: “I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings.”  

http://www.telegraph.co.uk/business/2017/10/25/energy-cost-review-lays-blame-governments-door/

 

 

As the comments in the Telegraph make resoundingly clear, the real problem is the Climate Change Act and successive governments’ obsession with decarbonisation.

Helm makes several recommendations, including:

 

  • Feed-in tariffs, contracts for difference and the capacity market auction should all be merged into a unified equivalent firm power (EFP) capacity auction. Low-carbon generators would be forced to bear the costs of their intermittency.
  • The legacy costs of the renewables obligation, feed-in tariffs and contracts for difference should be separated out, ring fenced and placed in a “legacy bank”. They should be charged separately on customer bills and industrial energy users should be exempt.
  • The government should establish an independent national system operator (NSO) and regional system operators (RSOs) under public ownership. They should take on a number of duties currently undertaken by distribution network operators (DNOs) and Ofgem.
  • The RSOs should be responsible for securing local energy supplies and should do this by contracting out system requirements. This process should take the place of periodic reviews and price caps under the RIIO framework. DNOs would effectively become contractors – “one of a number of competitive suppliers”.
  • Carbon taxes and prices should be harmonised by setting a universal carbon price across the whole economy. There should be a border carbon price to prevent emissions being exported.
  • Separate licenses for generation, supply and distribution should be replaced by a simpler, single license, at least at the local level.
  • Standard variable tariffs should be superseded by default tariffs based on an index of wholesale costs, the fixed cost pass-throughs, levies and taxes, and a published supply margin. The government’s proposed price cap should take the form of a cap on the supply margin. 
  • The government should give an annual statement to parliament, setting out required capacity margins and guidance for the NSO and RSOs.

Most seem to be to be simply rearranging the deckchairs, whilst at the same time adding even more bureaucracy.

His idea that low-carbon generators should bear the cost of their intermittency is an interesting one, but as these will simply be passed on in any auction price, consumers will surely still end up paying.

As I have been pointing out for a long time, signing up long term contracts for low carbon generation at high prices, rather than waiting for technology to deliver lower costs was always a huge mistake. But, unfortunately, we are now stuck with these costs.

If the government is serious about stopping electricity bills rising even higher in the next few years, it only has one serious option – put an end to all new subsidised contracts for renewables, and allow the market to operate freely.

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30 Comments
  1. HotScot permalink
    October 26, 2017 11:34 am

    Tap, Tap, Tap.

    Can you hear that?

    Tap, Tap, Tap.

    What on earth could it be?

    Tap, Tap, Tap.

    Oh look, it’s someone else knocking a nail into the coffin of AGW.

    • Gerry, England permalink
      October 26, 2017 3:29 pm

      Is he called Donald by any chance?

      • HotScot permalink
        October 26, 2017 5:57 pm

        Amongst others

  2. Rickibaby permalink
    October 26, 2017 11:42 am

    Can’t be a woodpecker. They’re burning all the trees.

  3. keith permalink
    October 26, 2017 12:14 pm

    Don’t hold your breath for anything to change. The Government Ministries responsible are totally incompetent and full of greenies who couldn’t care less about the price being paid by consumers and industry as long as the idiotic targets set by the stupid Climate Change Commission are met.
    Don’t forget these Ministries are actually being run and follow policies set by green NGO’s such as Greenpeace, WWF, Friend of the Earth, who couldn’t care less about energy costs as long as their darling renewable energy approaches are used. After all the Climate Change Act was actually developed by Friends of the Earth, and the Government hasn’t got the guts to challenge the whole thing..

    • HotScot permalink
      October 26, 2017 12:22 pm

      keith

      But something has changed. Both Brexit and Trump were reactions against the orthodoxy. And when public pressure from rising energy prices begins to bite, our disloyal government (and they are all disloyal) will drop Greenpeace, the WWF, FOTE etc. like a hot brick.

      These organisations are politically transient and only useful to politicians as long as they serve a popular purpose. That popularity is being eroded rather more quickly than they expect.

      • keith permalink
        October 26, 2017 2:03 pm

        HotScot, I really hope you are right, but when we have our stupid Climate Change Minister, claiming proudly consumers should willingly pay for all the useless renewable energy put in place, I despair that this Government have any idea of what they are doing.
        You are obviously an optimist, and I do hope you’re right, but I remain rather pessimistic over this issue.

      • John Fuller permalink
        October 26, 2017 2:14 pm

        HotScot, I think, and hope, you’re right. The government commissioned this report. I’m guessing they may have had an idea of the outcome.

      • Derek Buxton permalink
        October 26, 2017 5:01 pm

        I wish i could rely on that statement, at present the government will listen to anyone but us the people. Any “celeb” can push the HoClow*s…oops Commons! Especially on climate change and what we may eat and so on, we do not get a choice, and this is supposedly a conservative party…don’t make me laugh, they are more Corbyn than than Thatcher.

      • daveR permalink
        October 26, 2017 10:06 pm

        Some Scottish press today carried a full page hit piece from NnG Offshore Wind Farm Coalition group addressed explicitly to RSPB Scotland for daring to legally contest four proposed Firth of Forth developments:

        https://www.nngcoalition.com/dear-rspb-scotland-youre-putting-jobs-risk/

        It’ll be ‘interesting’ to see what – if any – response is forthcoming and the decision by the Supreme Court. At least the ‘coalition’ is straight talking propagandist – unlike wider RSPB policy.

  4. Adam Gallon permalink
    October 26, 2017 12:31 pm

    With so much political capital expended on this, any reversal will take a very long time. Even Trump’s been knobbled.

  5. Dung permalink
    October 26, 2017 12:55 pm

    The bottom line is also that the huge program of building coal fired power stations in the rest of the world makes all this government policy utterly pointless. What is happening in the UK simply can not be justified.

  6. October 26, 2017 1:03 pm

    “…Low-carbon generators would be forced to bear the costs of their intermittency….”

    That’s all it will take for renewables to wither on the vine and die. And – as Professor Paul Howarth opines: “…We [the UK] are going back to the Top Table as far as Nuclear is concerned…”:

    http://prismsuk.blogspot.co.uk/2017/07/we-uk-are-going-back-to-top-table-as.html

  7. CheshireRed permalink
    October 26, 2017 1:06 pm

    Nothing you and your readers haven’t been warning about for many years, Paul.
    Just about every price, contract and supply index has fallen against ‘decarbonisation’. Gas supply and price, wind contracts, solar, biofuel, recoverable FF reserves, technology advances, the lot. But no, they had to legislate and had to tax, and now look where we are.
    A sane response would be to advise government their green policies are what total policy failure looks like. I won’t hold my breath.

    • Rowland H permalink
      October 26, 2017 9:57 pm

      “Taxing a country into prosperity is like standing in a bucket then trying to lift yourself by the handle”. Winston Churchill

  8. Tim Hammond permalink
    October 26, 2017 1:23 pm

    Costs are costs, and in the en the only people who can pay are the people. The government should face facts, and admit that the bills we pay represent the costs of energy, and that that they are much higher than they were (and than they could be) because of government policy.

    But that would mean the government admitting that it has deliberately made an essential part of our lives more expensive. So instead a Troy government blames “business” and then wonders why the electorate is anti-business.

    That is what happens with stupidity in government, more stupidity is piled on it, and then yet more.

    • Gerry, England permalink
      October 26, 2017 3:31 pm

      And they have tried to call it Labour’s Climate Change Act but just how many Tories voted against it?

    • Derek Buxton permalink
      October 26, 2017 5:07 pm

      Which “troy” government would that be, has the conservative party finally got round to changing its name? It definitely should ’cause tory it ain’t!

      • Gerry, England permalink
        October 28, 2017 12:17 pm

        I think you have it the wrong way round. They are called the Conservative Party but are by no stretch conservative and haven’t been since Call Me Dave came along or even before when we had the inept Major as PM. They should be called Blue Labour to tell them apart from Red Labour. There were many who said that since Labour now had a socialist as leader in the form of Corbyn could the Tories not have a conservative leader. I like Jacob Rees-Mogg except that on Brexit he is completely ignorant – not the only one of course.

  9. October 26, 2017 1:54 pm

    As Einstein is reputed to have said:
    “Only two things are infinite, the universe and human stupidity, and I’m not sure about the former”
    and as he is not reputed to have said:
    “Stupidity is doing same thing over and over again and expecting different results”.
    Stupidity has been at the heart of Government energy policy since Blair came to power.

    • October 26, 2017 2:21 pm

      The stupidity is to rely on a profit driven Market to provide a national necessity. That leave the fly men, and the money men, free to expoit a national resource for profit and not the national good.
      What we need are the technical power experts who will look at what is needed, what are the constraints, and how do we do it for the economic benefit of the consumer.

      A great example was the North of Scotland Hydro Electric Board. What a legacy they left. Sadly that legacy wqas privatised and is also now owned by fly men.

      • Gerry, England permalink
        October 26, 2017 3:33 pm

        A profit driven free market would give us cheaper bills all round due to competition but although the generation is in private hands it is just about the most heavily regulated and distorted market there is.

  10. DAC permalink
    October 26, 2017 1:59 pm

    You need to bear in mind that the report is written with commitment to CCA as a given, so it’s all about how to do that better. Until someone of equal stature is asked to produce a report on the wisdom of the CCA nothing is going to fundamentally change direction.

  11. MrGrimNasty permalink
    October 26, 2017 2:33 pm

    You can see it is a politicized report – blaming excessive green taxes rather than massive subsidies for uneconomically viable energy production methods!

  12. theguvnor permalink
    October 26, 2017 2:39 pm

    The other angle on this is the cost of the CCA on new housing via the Building Regs. New homes now need a minimal thermal requirement or if this cannot be achieved a renewable contribution such as solar which can only add to cost. I read somewhere that this added £20,000 to average 3 bed home but can’t find exact source currently but here’s another.
    https://www.rbkc.gov.uk/pdf/63%20Cost%20Analysis%20of%20the%20Code%20for%20Sustainable%20Homes%20July%202008.pdf
    So its a double whammy, methods added to housing cost supposedly to reduce energy bills which as noted above continue to rise. No wonder there’s a housing shortage at the first rung level!

    • A C Osborn permalink
      October 26, 2017 4:32 pm

      The cost is immaterial, they are “Saving The World”, or something.
      Until the public come out and say enough is enough, we won’t vote for that or you, they will just carry on regardless.

  13. Joe Public permalink
    October 26, 2017 2:47 pm

    “As I have been pointing out for a long time, signing up long term contracts for low carbon generation at high prices, rather than waiting for technology to deliver lower costs was always a huge mistake.”

    Let’s not forget DECC’s expertise at ‘guessing’ future oil prices (i.e. the ‘currency’ used back then), made in 2013 & 2014:

    Today’s Brent Crude price is $58.23 per barrel

    • Jack Broughton permalink
      October 26, 2017 3:10 pm

      “The best-laid schemes o’ mice and men gang aft agley”: those of DECC “gang aye agley”!
      Our energy policies have been brilliantly based.

  14. Green Sand permalink
    October 26, 2017 4:25 pm

    Nice benign mild October early evening:-

    58% Gas
    9% Coal
    19% Nuc
    4% Wind

    http://www.gridwatch.templar.co.uk/

    • Athelstan permalink
      October 26, 2017 5:47 pm

      A cold snap beckons Green Sand, lets view the figures when it bites.

      More than? then what if, a cold Winter and gas becomes very, very popular and Ivan threatens to turn off the taps? EU spot gas prices leap and the Germans start demanding vastly increased use of French Nuclear ‘juice’ what then for lil ol’ Britain – consumers will be stiffed doubtless and how much coal fired capacity do we still have? All round we’ll be ****ed.

      Ministers took their eye off the ball but brains in their ars*s couldn’t find em to use ’em anyway. It is, a sad hotchpotch; environ/energy/dti – list inclusive of parkinson, gummer, hezza, little hilary benn, RED ED millipeed, Chris buffoon, dead Ed davey, amber fudd and now greg barking and wotsherface – it’s ALL your fault, you diddled and doodled and allow green pi99, FoE, albeeb, and the UN-EU corporate green blob bodgers to dictate energy policy and we are where we are in deep poo and grievously, stupidly, self destructing and mining deeper as each day passes.

      And finally, in all conscience, to, that mealy mouthed Mr. Dieter Helm – you are still part of the problem mate, not the solution.

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