Green levies – where does the money go?
The falling price of oil and gas hasn’t escaped the attention of politicians and householders who are demanding that the “big six” energy firms pass on savings to customers.
E.ON, British Gas, Scottish Power and npower cut their tariffs by between £24 and £35 in the two weeks after the Treasury began investigating energy firms’ prices.
Yet recent intense political pressure is targeted at a portion of overall energy bills – the 47pc that makes up wholesale costs.
A sizeable chunk, 9pc or £112 over the course of a year, goes toward government backed green levies. Government figures show that on a typical bill of £1,255, wholesale represents less than half the overall cost (£597). The second-biggest component goes toward energy firms’ network costs (£257) and other “delivery” costs, including profits (£240).
The £112 levy, broken down in the pie chart (below), is in addition to the 5pc VAT bill that adds £60 to energy costs, according to the Department for Energy and Climate Change.
And this figure is predicted to rise. Green levies will add a further £55 to bills between now and 2020, and £75 by 2030, says the Committee for Climate Change.
But as homes get more efficient and we become less reliant on fossil fuels as a nation, the net cost added to our bills could fall, according to industry experts.
1. Energy Companies Obligation and the Green Deal: £47
The Energy Companies Obligation (Eco) is the Government’s scheme to help householders install energy efficient home improvements.
Under the rules, energy firms must help to improve the energy efficiency of their customers’ buildings, with initiatives focused on the poorest and most difficult-to treat homes, with costs added to customers’ bills.
So far, more than one million homes across the country have had works funded through the policy. Householders can check their eligibility by contacting the Energy Saving Advice Service (0300 123 1234).
This is different to Green Deal cashback, which is funded through taxpayer money, but includes administrative costs of the Green Deal, for example the costs of setting up Green Deal loans.
James Higgins, green energy policy expert at Ecuity Consulting, said parts of the scheme had “barely scratched the surface” in improving the efficiency of Britain’s homes, particularly for solid wall insulation which is required for most houses built before 1930.
2. Renewable Energy Obligation: £30
Supporting large-scale renewable energy projects, such as solar power and wind turbine farms, cost £3.8bn last year, with this figure set to rise to £5.8bn from April 2015.
Any renewable energy source that generates more than 50kW, equivalent to one large wind turbine, is eligible to receive these subsidies.
This type of generation is expensive: even though renewable sources produce 16pc of UK generation, 90pc of this is supported through green levies.
All energy suppliers pay towards renewables in this way, regardless of how they source their energy. For example, energy firm Good Energy, which sources all its power from renewables, pays the same as other firms.
“The principle is that ‘everyone pays’ – so the cost to all customers should be roughly the same,” says Gill Dickinson of Good Energy.
3. Warm Home Discount: £11
The Warm Home Discount is a grant of up to £140 to help low-income pensioners pay for electricity during winter.
A total of £320m will be paid to customers in the winter of 2015 to 2016, and the scheme works in addition to taxpayer-funded cold weather payments and winter fuel payments.
To qualify, householders must be with a registered energy supplier and receive the pension credit guarantee, although other households considered “vulnerable” may be eligible.
However, take-up has not matched eligibility. Of 1.7million eligible people, just 1.4million are expected to claim this winter.
Caroline Abrahams from charity Age UK said more should be done to promote the scheme before funds run out in 2016.
4. EU Green targets: £8
Europe plans to ensure that 15pc of energy demand in Britain will be met from renewable sources by 2020.
A cornerstone of EU policy is the “emissions trading system”, which caps the total amount of greenhouse gases that can be emitted, for example by factories and power plants.
If energy generators think they will emit more than their cap, they can purchase an extra allowance from the EU. There are added costs, too, such as monitoring and reporting carbon emissions.
Alex Coulton of Renewable UK said: “This impacts the wholesale price we pay by adding to the cost of coal and gas generation, especially for coal which emits more carbon.
“But in the future these mechanisms will have a small impact on consumer bills as we become less carbon intensive as a nation.”
5. Feed-in-tariff payments: £7
If you install electricity generating technology from a renewable or low-carbon source such as solar panels or a wind turbine, government feed-in-tariffs mean you receive money for energy you export to the National Grid, as well as the power you use.
Under the current government feed-in tariff rates, a householder with solar panels could generate an income of £625 a year.
6. Carbon tax: £5
The “carbon price floor” is a government-imposed minimum price on every tonne of carbon dioxide emitted. Because European policies already increase the cost of fossil fuel emissions, it only adds £5 to energy bills.
Mr Coulton said the policy acts as “top-up” to European policy: “If we took away EU price controls, the Carbon Price Floor would keep wholesale prices high.”
It’s unlikely to form an increasing part of households’ bills, however, since Chancellor George Osborne plans to freeze carbon tax until 2020.
7. The smart meter roll-out: £3
Smart meters, the in-home devices that track energy use, will cost every home about £215 over the next 15 years as energy firms deliver them to customers.
The Government says that meters will save householders £23 a year by 2020, by making people more aware of their energy use and scrapping meter readings where an engineer visits your home.
However, energy experts have denied claims that “only a smart meter can get you accurate bills from your energy supplier” made by Smart Energy GB, the firm overseeing the smart meter roll-out.
“What makes smart meters smart is that they transmit data every second. Getting rid of meter readings doesn’t need a smart meter,” said Steve Thomas, professor of energy policy at the University of Greenwich.
By Kate Palmer
10:48AM GMT 26 Jan 2015