In March this year, the Committee on Climate Change published their latest review of the impact on energy prices of government climate policies:
I cannot recall it making many headlines at the time, but, as Joe points out, it makes for interesting reading.
The key chart is this one:
By 2030, climate policies will be adding 6 pence per kWh to residential electricity bills, in addition to a small amount added to gas bills. This equates to 28% of electricity bills by then.
Average annual electricity usage is about 4,000 KWh per household, meaning an extra cost of £240.
It is worse than that, however, because government policy is to “encourage” people to electrify heating. Since gas is already a much cheaper option at about 4.6 per KWh, the impact of higher electricity prices on energy bills will be significant.
The CCC has not included the cost of smart meters in their calculations either, though in theory these should be covered by 2020 or soon after. Whilst it makes allowance for extra costs of intermittency, it also factors in what is called “the merit order effect”. This assumes that wholesale prices will fall because of the inroad of low-marginal cost renewables.
Similar costs will also be loaded onto non-domestic users, ie commercial, manufacturing, transport, and public sector. The only slight exception will be those large manufacturing companies who qualify for compensation to offset carbon pricing.
Residential demand accounts for about 35% of total electricity, which last year was 304 TWh. However, electricity demand is forecast to increase to around 379 TWh by 2030. Based on this figure, the 6 pence per kWh will mean that the cost of climate policies by then will be a horrifying £22.7bn a year, (all at current prices).
CCC also assumes that wholesale electricity prices will steadily increase between now and 2030, predicated on substantially rising gas prices. (Again, this is at 2016 prices).
Why is this important? Because the higher the wholesale price, the lower the apparent subsidy to renewable energy is.
The report shows the sensitivities. Based on the arguably more realistic Low Gas price curve, the cost of climate policies would increase by a further £2462 million.
Added to the £22.7bn, this would leave us with a bill of £25.2bn. To put this into perspective, it would amount to about £900 per household.
Inevitably the CCC has tried to spin this by claiming that these increased prices would be offset by savings in energy consumption.
This ignores four factors:
1) Many energy saving devices and systems actually cost money in the first place.
More efficient light bulbs, for instance, are much more expensive than the traditional sort. Whether or not they actually save money in the long run, you simply cannot claim the energy savings without offsetting against the higher purchase price.
The same applies to insulation and many other examples.
2) The government is trying to claim credit for advances in product technology which may have happened anyway.
Cars nowadays probably give twice the mpg of those from thirty or so years ago. This has not happened because of government diktat, but because of the natural operation of the free market.
The same applies to many products.
What the government, together with their hired help, the CCC, are trying to do is take away from households the benefits of better technology, by using them to pay for climate policies.
3) Residential solar panels reduce domestic electricity consumption figures, as measured by the government. But, of course, solar panels also cost a lot of money, and may also subsidize via RHI schemes, which are funded by the taxpayer.
4) It is also undoubtedly true that reduced energy consumption has been the result of higher prices. The biggest fall in domestic electricity took place between 2005 and 2011, a time when prices were rising rapidly and incomes falling.
Since 2014 there has been virtually no reduction at all. There is little indication that further large savings can be sustained into the future.
Read more at Not a lot of People Know That
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