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:
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.