energy bills

UK green energy scheme costs “underestimated”; American energy bills inflated by climate change

The cost of green energy schemes has been underestimated according to the Commons Public Accounts Committee (PAC), which believes typical households will have their annual bills inflated by an average of £110 by 2020.

The figure is £17 more than previously expected and PAC said the Government’s management of the levy control framework, which is supposed to cap the cost of the schemes, suffered from “a lack of transparency, rigour and accountability”.

The cross-party panel said the problems with forecasting the cost of the schemes were the result of “a culture of optimism bias” in the Department for Business, Energy and Industrial Strategy, which took over from the old Department for Energy and Climate Change.

However, ultimately the cost of not investing in green energy schemes could also push consumer energy bills up.

A new study from the University of Michigan has found that climate change is likely to increase electricity costs in the US over the next century by billions of dollars more than economists previously forecast.

It showed that higher temperatures could raise not just the average annual electricity demand, but also the peak demand. To absorb these surges, utilities will need to spend between $70bn (£56bn) and $180bn in grid upgrades, power plants and futuristic energy storage systems for which ratepayers would ultimately foot the bill.

Regardless of the approach taken, it appears that consumer energy bills will increase in the future due to climate change.

The UK’s levy control framework sets yearly caps on the forecast costs of the renewables obligation, feed-in tariffs, and contracts for difference schemes funded through levies on energy companies and ultimately paid for by consumers in their energy bills.

PAC’s Labour chairwoman Meg Hillier said: “Bill-payers deserve to know whether or not the energy schemes they fund represent good value. The Government has failed to meet its commitment to report annually on the impact these policies are having on bills. Current arrangements just aren’t good enough.

“At the same time, the Government expects the cost of levies to continue to bust the budget, meaning customers will pay more than expected. This is a result of poor forecasting and further evidence of excessive optimism in the implementation of energy policy.

“Government must take action to address this and also ensure customers can see clearly what they are paying towards existing and future schemes through their bills.”

A National Audit Office report in October found that the £7.6bn cap on subsidies for low-carbon electricity set by the Government for 2020/21 will be breached by more than £1bn by the end of the decade.

A spokeswoman for the Department for Business, Energy and Industrial Strategy said: “The Government is committed to helping ordinary working people keep more of what they earn and supporting households with the cost of living.

“The strong, decisive action we took reduced projected costs by over half a billion pounds to protect people’s household budgets and ensure value for money while delivering more environmentally friendly energy.”

The US’s energy usage differs from Britain in that bills tend to be higher in the summer rather than the winter because of higher temperatures and the use of air conditioning.

Catherine Hausman, assistant professor at the University of Michigan said: "Climate change researchers know that when we look out over the next 100 years, things will get warmer and, on a per-person basis, use of air conditioning will rise. The question we asked was: 'On the hottest day of the year, when people are maxing out on that, can the grid handle it?'

This means that climate change adaptation is going to be more expensive than we thought and so mitigation efforts become more valuable - more worthwhile - because they can prevent these costs.

A recent report found that fossil fuel demand could peak in 2020 due to the falling costs of electric vehicles and solar panels.

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