A thousand pounds on energy bills due to green policies?
- 20 Jul 2011, 14:00
- Christian Hunt
What's making fuel bills rise, and by how much? It's a
live political issue, and there are a lot of numbers flying around,
many of them in the Daily Mail.
In June, the Mail
claimed in a series of articles that 'green
measures' were adding £200 to an average household energy bill. At
the time, we highlighted
that this figure was based on unreferenced claims by climate
skeptic lobbyists the Global Warming Policy Foundation. Others
also
questioned it.
A few weeks later the Mail quietly stopped
using the £200 figure in favour of energy regulator Ofgem's
estimate of £100. But last week, green bills were back with a
vengeance. Two articles
suggested that an average energy bill would
double over the next five years, rising by £1000 to around £2000
"to fund a switch to green energy and build new nuclear power
stations", and the paper's front page
headline warned:
"Families face £1,000 bill for
green energy: Huge annual levy to appease the climate
lobby"
This figure is notable because it differs dramatically to
other estimates of how energy bills will be affected by renewables,
nuclear build, energy efficiency and changes in energy
infrastructure.
The Department of Energy and Climate Change
estimated in July 2010 that the average
domestic energy bill would rise to £1,239 by 2020, with 1% of the
rise due to the implementation of 'green' policies. They told us
this week that this figure has been revised - they now estimate the
average energy bill in 2020 will be £1,135 or £1,506 with
inflation. These figures are for bills, not energy prices, and are
based on estimated figures for electricity bills
published last week, and figures for gas
bills which will be published later this year.
Energy regulator Ofgem have also produced a
range of possible energy scenarios. In the
two 'green' scenarios they produced, domestic consumer bills rise
either 14% or 23% by 2020.
Both of these estimates are significantly less dramatic than
the Mail's suggested 100% rise in five years, a figure which was
sourced to a report by
Unicredit bank. We couldn't get hold of a copy of
the report
when the Mail article was published and the
author was on holiday. However, we now have a copy of the source -
the January 2011 edition of their 'UK Power and Utilities'
report.
The report discusses future gas prices and their
implications for UK utilities. It doesn't focus on household energy
bills in any detail. The £1,000 figure appears once, on page
20:
"In our view, the cost pressures from
environmental and social programs and rising network charges will
mean that household bills will continue to increase in real terms
for many years to come. This excludes the impact of commodity price
movements which could increase tariffs even further … According to
our analysis, a typical UK energy bill could rise from the current
level of GBP 1000 per year to over GBP 2000 per year by 2015. As
investment occurs, bills could double every five years until 2020,
in our view."
The report does not specify how much of the suggested
cost increase would be due to green policies - indeed, no further
detail is provided. We contacted Unicredit asking for more detail
about how this figure was calculated, but were given a polite "no
comment":
"Unfortunately, it is our policy to only
discuss with, and provide research to, institutional investors and
clients of the Firm. This therefore precludes us from making any
further comment at this time."
One possibility is that the figure includes the effect
of a high rate of inflation. However, this is speculation, as
Unicredit also declined to respond to a follow-up question about
whether the figure included the effects of inflation, and at what
rate.
It seems unlikely that the Mail talked this through with
Unicredit, given the bank's 'no comment' policy and the fact that
the analyst was away at the time. The only
quote from the report in the Mail
piece appeared identically in an FT
blog about the Unicredit report in January
2011.
Does all of this this matter? Yes, probably. The impact of
rising energy bills on fuel poverty is a serious issue. Bills can
be pushed up by policies, by rising fuel costs, or by a combination
of the two. Clear and transparent analysis and discussion of the
issue isn't possible if sources can't be assessed and
interrogated.
Over the last few weeks the Mail has given prominence to two
numbers which have been impossible to interrogate. The first - that
green policies are adding £200 to current bills - came from a
climate skeptic lobby group who have declined to explain their
calculations.
The second - that bills will rise £1000 in the next five
years because of green policies - is at odds with mainstream
estimates and comes from a report which is not publicly available,
which the authors will not discuss, and which contains no further
detail about how the figure was calculated.
This doesn't make these claims easy to assess, and isn't
particularly helpful to advancing the debate.