How the Conservatives sextupled the CCC’s estimate for green power costs
- 27 Aug 2013, 14:30
- Robin Webster
A Labour Party commitment to cutting greenhouse gas
emissions from the power sector would add £125 to consumer energy
bills by 2030, argues the Conservative Party. But the estimate
relies on the assumption that the cost of wholesale electricity
will remain the same - one of several factors that ensure the
Conservatives' figure is six times higher than a previous analysis
The figure appears on a new website
from Conservative Party headquarters, which claims Labour's
proposed policies will cost voters more in the future:
The £125 number isn't referenced or explained on the
website, which seems like a missed opportunity for a project that
focuses so closely on facts and figures. Justice Secretary,
Chris Grayling, cited the number in the
Sunday Telegraph last week, but also failed to explain it. We take
a look at the calculations behind the claim.
Where does £125 come from?
Labour has committed to a target that would require the
UK power sector to become pretty much carbon dioxide-free by 2030
in its election manifesto. The party is following the advice of the
Committee on Climate Change (CCC), the
government's climate policy advisor, which says
decarbonising electricity generation
the country's best bet for
reducing greenhouse gas emissions
quickly, in line with its legal obligations.
The Conservatives say this commitment would add £125
to consumer energy bills between 2020 and 2030, however. A
spokesperson from Conservative campaign headquarters tells
"[£125] is a Conservative party
estimate based on government figures and a report commissioned by
the Climate Change Committee [sic] in June. This report said that,
by 2030, an extra £7.5bn a year in support costs would be needed to
decarbonise the power sector. Based on DECC's analysis of the cost
to consumers of existing incentives, we estimate this would add
around £125 to consumer bills."
The report, from consultancy
Poyry, predicts that environmental
subsidies - financial support costs for nuclear power and renewable
technologies, which are added to consumer energy bills - will cost
£5.5 billion per year by 2020. If the government delivers on the
2030 decarbonisation target, the report says, this will rise to £13
billion a year by 2030.
The government is already committed to spending the
money through to 2020, so according to this analysis the
decarbonisation target will add an additional £7.5 billion in
support costs between 2020 and 2030.
£7.5 billion ignores falling wholesale
The exact quote from Poyry's report (p.99) is:
"Support costs are around £5.5bn in
2020 and £13bn in 2030. The projected resource costs are lower than
the projected support costs in Figure 42 because they take account
of the fact that deployment of low-carbon generation is expected to
lead to lower wholesale electricity prices than would otherwise be
So Poyry's report also predicts that increasing the
amount of energy the country gets from renewable sources
(particularly wind power) will reduce the wholesale costs of
electricity - bringing the cost down again. The Conservatives'
calculation appears to ignore this.
From our read of the two graphs in the report, the
falling wholesale price of electricity could cut the additional
cost roughly in half:
The Conservative spokesperson tells us:
"Our calculation only considered the
support cost. This is because support costs, historically, have
been direct levies on consumers - it is very difficult to predict
what the wholesale electricity price will be, which is what the
resource cost rests upon."
The Conservatives are right that it's difficult to
predict what the price of electricity will look like over the next
couple of decades. Poyry's calculations rely on assumptions about
the rising cost of fossil fuels and a future carbon
This does, however, illustrate the perils of just
picking a number in isolation from the analysis that has produced
it. The Poyry report was commissioned by the CCC. Chief Executive
of the CCC David Kennedy, tells us that any calculation which
doesn't look at the costs of relying on gas instead is
£7.5 billion is a high-end
Kennedy also tells us the Poyry report was only
looking at costs under "certain scenarios" that were "very
expensive". In particular, Kennedy says Poyry assumed a high level
of carbon capture and storage (CCS) - which is an expensive
The CCC commissioned Poyry's analysis as a part of
its research process - but in its own final
report, published in May, the CCC assumed less CCS would be added
to the system in the 2020s, so the scenarios it modelled were less
Getting from £7.5 billion total cost to £125
The Conservatives assume the support costs will be
paid via the existing support regime known as
Contracts for Difference - and
calculate that £7.5 billion additional cost will add around £125 to
consumer bills by 2030.
26.4 million households only account
third of the country's total energy
use. If households only bore a third of the costs, then adding £7.5
billion in support costs would add about £95 to bills. But in
reality, it isn't as simple as that - because for example
energy intensive users will be
exempted from some 'green costs'.
The Conservatives say they have modelled their
DECC's analysis of the cost of existing
incentives to consumers, which calculated that adding £7.6 billion
to support costs by 2020 would add £132 to consumer energy bills.
So this bit of the calculation could be right.
Six times higher
The Conservatives aren't the only ones to estimate
the cost of the decarbonisation target - the Committee on Climate
Change has also done it. But the committee thinks the cost to the
consumer will be six times smaller.
Using Poyry's report as well as other analysis - and
taking the changing price of electricity into account - the CCC
estimated that an
extra £20 will be needed per household
in 2030 to pay for the decarbonisation target. This is six times
smaller than the Tories' estimate of £125.
The CCC's assumptions can probably be questioned as
well - predicting future energy prices is a pretty subjective
exercise. But overall, the Conservatives' calculation does seem to
have some gaps in it - ignoring the caveats that were clearly
highlighted in its source material.