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How much does DECC think the energy bill is going to cost consumers?

  • 29 Nov 2012, 18:00
  • Robin Webster

How much is the energy bill, unveiled today, going to cost consumers? The question forms the foundation for much of the media coverage of the legislation, but it's not one that is easy to answer. Journalists looking for figures often turn to calculations released by the Department for Energy and Climate Change (DECC) - but the details of the numbers are sometimes overlooked, or even just misreported.

Projecting energy bills into the future is an uncertain exercise. Bills are influenced not just by the relative success of government policies, but also how energy companies behave, and by future changes in gas prices. These are in turn impacted by a host of social and political factors.

So DECC's projections rest on a certain set of assumptions. For obvious reasons DECC's calculations are also frequently used by journalists - with varying levels of accuracy. So here we clarify what its calculations actually say, and the assumptions they come from.

The costs of Electricity Market Reform (EMR)

Electricity Market Reform (EMR) is the central part of the energy bill. Its purpose is to change the way the electricity market works so that it's easier to reduce the amount of energy we get from fossil fuels, and increase the amount we get from renewable electricity.

In its notes to editors to the press release DECC says today:

As a result of  the EMR reforms, average household electricity bills are estimated to be around 5 to 9% lower over the period 2016 to 2030, compared to what they would be if a decarbonisation intensity of 100gCO2/kWh were achieved in 2030 through existing policy instruments.

It's important to note that these figures don't compare a world where the UK switches away from fossil fuels to renewables with one where it doesn't. The DECC figures compare a world where the UK uses current policy measures to do that job, with one where it uses the measures contained under the new EMR package to do so.

This seems like a rather questionable exercise, as there doesn't seem to be much possibility of the government continuing to 2030 with its current suite of policies. DECC's argument is that the measures contained in the EMR will make it easier and cheaper for the UK to switch to a low-carbon energy system.

DECC tells us the figure comes from its energy bill summary impact assessment, released today:

Screen Shot 2012-11-29 At 15.18.54

Source: Domestic bill impacts as a result of EMR. Table 4, p.14, DECC energy bill summary impact assessment.

DECC estimates that from 2016 to 2030, the average consumer's domestic electricity bill will range from £669 to £698 under a scenario where it continues to implement current policies to reduce emissions. But it projects that, if the EMR reforms contained in the energy bill are introduced, then bills will be between £32 and £61 cheaper than they would have been.

The costs of the government's climate and energy policies as a whole

But it doesn't really matter how much the policy measures specific to electricity market reform cost in isolation. What matters is how much all the government's policies cost when you add them all up together.

The government said last week that it is limiting consumer funding for all nuclear and renewables by 2020 to £7.6 billion under the Levy Control Framework, which sets a limit on spend. A spokesperson for the department told us it estimates the cost of support measures for nuclear and renewables on household bills will rise from £20 in 2011, to £95 in 2020.

But this still doesn't tell us how much it will cost once energy efficiency measures are factored in. If they work, they should technically reduce demand and cut bills. The government argues that if policy measures to ensure we use energy more efficiently are introduced, they will bring bills down again.

What will it cost? The short answer is we just don't know - and DECC haven't released figures on this yet. DECC told us today that as the negotiations about all the different aspects of the the energy bill were only finalised last week, they haven't yet had a chance to do all the calculations.

Until that happens the most recent assessment of how climate and energy policies will affect bills remains a report which DECC published in November 2011. In this report DECC estimated that all the government's energy and climate change policies will lower the average bill by £94, or 7 per cent as a result of investments in energy efficiency.

DECC tells us it is updating that document to take account of the measures in the energy bill and that the new version will be released in the New Year. A spokesperson added that DECC doesn't expect the numbers to change that much, however.

So how much is it going to cost - really?

It's worth stating again that quite a few assumptions go into these calculations. The core assumption in the government's calculations is that its energy efficiency measures are going to work - allowing it to claim that energy consumption, and therefore consumer energy bills, will reduce overall.

But perhaps the most important message from all this is that the government hasn't updated its calculations on the impact of its policies on consumer energy bills to reflect the form that the energy bill has ended up in yet. So if you see media coverage claiming that it has, and new, startling numbers have come to light, we advise treating it with scepticism.

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