Energy policies help households but hinder business

27 March 2013
By Edd Gent
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Government energy policies are due to cushion households from energy price hikes, but are not doing enough to help industry

Government energy policies are due to cushion households from energy price hikes, but are not doing enough to help industry

Government policies are slowing the rise in household energy bills but not helping businesses, according to a report.

Savings generated from energy-efficiency policies, such as helping insulate homes and promoting the installation of more energy-efficient boilers, are already having an effect and will increase over the next decade, a report from the Department for Energy and Climate Change (DECC) has said.

Household dual-fuel bills, gas and electricity, are estimated to be on average 5 per cent or £64 lower now than they would be without these policies and though average household energy bills will have risen by 6 per cent in real terms by 2020, they will be 11 per cent, or £166 lower than they would been without government policies, according to the report.

Energy and Climate Change Secretary Ed Davey says: "Global gas price hikes are squeezing households. They are beyond any government's control and, by all serious predictions, are likely to continue rising.

"We are doing all we can to offset these global energy price rises, and while we have more to do, this new study shows our policies are putting a cushion between global prices and the bills we all pay."

But the picture for businesses that are medium sized users of energy is not so rosy. They currently face energy costs that are on average 21 per cent higher as a result of energy and climate-change policies with this figure rising to 22 per cent by 2020, the report found.

Davey says: "The picture for business is less positive, which is why our new proposals to exempt and compensate the most energy-intensive industries from certain policy impacts is crucial. Nothing would be gained from forcing industry, jobs and emissions abroad."

Large energy-intensive users currently face energy costs that are on average 1-14 per cent higher as a result of policies, with this rising to 6-36 per cent by 2020, the report said.

But the report said these estimates did not include measures the government was currently considering to reduce the effect of low carbon policies on the costs of electricity for energy-intensive industries, including a £250m package of compensation for industry to 2014/15.

Steve Radley, policy director at EEF, the manufacturers' organisation, says: "This is a wake-up call. Policies are already adding 30 per cent to business electricity prices, and this will rise to 50 per cent by 2020 and 70 per cent by 2030.

"Measures to shield the most energy-intensive industries from a portion of the costs will make a difference but, unless we get a grip on spiralling policy costs, steeply rising electricity prices for the rest of the sector risk making the UK an increasingly unattractive location for industrial investment and undermining efforts to rebalance the economy.

"The first step is scrapping costly policies with questionable environmental impact, such as the carbon price floor (CPF) and the CRC Energy Efficiency Scheme, as soon as public finances allow."

But chief executive of the Renewable Energy Association Gaynor Hartnell believes the CPF, a tax on fossil fuels used to generate electricity which comes into effect on 1 April, provides a valuable incentive to invest in greener energy.

She says: “The CPF is a tax on pollution (polluter pays principle) that seeks to internalise environmental costs. Ideally the full costs to society of carbon emissions should be reflected in the price we pay for fuels and electricity.

“The CPF is the first small step in this direction. Ultimately this approach should supersede other more direct subsidies, but it should not be done too soon.

“Renewables deliver many other benefits, in addition to carbon savings. Very importantly they help with security of supply. With most renewable technologies there are no fuel costs, and we aren’t dependent on imports which leave us vulnerable in an ever energy-hungry world.”

Despite the report finding household energy consumption has been on a downward trend since 2005, partly as a result of energy efficiency measures already in place, Consumer Focus director of energy Audrey Gallacher says bills are still rising.

"Government policies will provide consumers with a level of protection compared with a 'do-nothing' approach, however consumers are looking for a do more strategy,” he says. "It is almost universally acknowledged that the best strategy to reduce energy costs is to create more energy efficient homes.

“Consumer Focus has argued that government should use the billions they will raise in carbon taxes to deliver a more ambitious programme to insulate our homes to higher standards, saving the poorest in society money on their bills, cutting carbon emissions and creating economic growth quickly and across the country. Reducing demand is quicker, cheaper, more sustainable and solves the problem at source.

"Also, while we have to bring on new and cleaner generation plants which loosen our dependence on fossil imports, we have to focus on how we pay for the new investment. The trend is for bill payers, rather than tax payers or shareholders, to take the burden and risk. We must question whether that is right, and government should commit to the least regressive way to fund energy investment."

About 47 per cent of the average household dual fuel energy bill is made up of fossil fuel prices, or £598, with the second largest cost attributed to network costs or transport and distribution of energy, at 20 per cent or £257.

Government policies on energy and climate change accounted for 9 per cent, or £112 of this bill – with £30 of this spent on renewable energy policies, including £9 on on-shore and £9 on off-shore wind.

Over half of the energy and climate change policy costs in household bills are spent on measures to target the fuel poor and energy efficiency.

The report showed 85 per cent of the rise in household bills between 2010 and 2012 was from wholesale energy costs and network costs and 15 per cent was as a result of Government policies.

By 2020 around 12 million boilers will have been replaced with more energy efficient boilers, the report said.

Caroline Flint, shadow energy and climate change secretary, says: "The government's underhand attempt to mask the real impact of its policies on families' energy bills is shameful.

“At a time when hard-pressed families and pensioners are seeing their incomes squeezed, only this out-of-touch government could expect people to fork out thousands of pounds on new TVs, fridge freezers and washing machines.

"Instead of cooking the books to trick people into thinking their energy bills will be lower, ministers should get behind Labour's plans to overhaul the energy market and deliver fair prices for the public."

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