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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.
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