The cost of building new power stations, windfarms and upgrading the grid will cause consumer energy bills to ” soar” another £640 by the end of the decade, announces Sky News. But the claim – repeated in the Daily Telegraph – is probably a significant over-estimate.
The future cost of energy bills is a regular feature in newspapers. But the numbers that make it into the papers are not always what they seem – based on unstated assumptions for example, or inaccurately reported.
In this case, Sky News cites consumer group Which? as the source of the story. But a spokesperson for the watchdog tells us “this figure isn’t ours. We don’t recognise it”.
So what’s going on? We tracked the number down.
£118 billion for new energy infrastructure?
The country’s energy infrastructure – the power plants that supply the energy, and the grid that supplies us with it – is old, and needs upgrading. In addition to this, the shift to cleaner sources of energy means a lot of new windfarms, solar panels and nuclear power plants need to be constructed.
All this costs money. Private companies will need to spend another £118 billion on new energy infrastructure between now and 2020, according to Which? And at least some of the cost – possibly all of it – will be passed onto consumers, via higher energy bills.
Which? says it’s calculated the £118 billion figure from the Treasury’s 2013 National Energy Infrastructure Plan, a document that lays out the government’s future plans for infrastructure across a variety of sectors.
The consumer group’s estimate is slightly higher than the Department for Energy and Climate Change (DECC)’s suggestion that the country will need £110 billion of private sector investment in the electricity grid and new power stations between now and 2020.
The claim that household energy bills could rise by more than £600 appeared on Sky News and in the Telegraph. The paper attributes the figure to Which? But in fact, it appears Sky did the maths itself.
We don’t know exactly how Sky News worked the figure out. But we can roughly recreate it: if £118 billion is divided up between the country’s 26.4 million households and then spread out over seven years, then that would add about £636 to every household’s bill.
If that’s the way Sky News worked it out, there’s a good reason why it’s probably wrong. Domestic consumers only account for about a third of energy consumption, so they’re unlikely to bear all of the cost. They are more likely to bear about a third of the cost, reducing the estimate to a bit over £200.
The cost of energy infrastructure
There’s been a lot of concern over rising energy bills over the last few months. Brits pay some of the lowest prices for their energy in Europe. But the costs are rising. As household budgets become more strained, bills have risen by at least ten per cent in the last three years, and polling consistently shows consumers are worried.
Last March, the Department for Energy and Climate Change (DECC) suggested rising energy prices and green policies combined could add about £463 to bills by 2020. It believes that its energy efficiency policies will moderate this rise, however – resulting in a total increase of just Â£11.
DECC’s predictions do take into account the cost of new energy infrastructure, according to a recent National Audit Office (NAO) assessment. But the NAO also says:
“… there is an inconsistency between the amount of investment the private sector is currently planning, identified in the National Infrastructure Plan, and the amount of investment DECC’s models predict is needed to meet government objectives. DECC’s models currently predict around three quarters the level of investment that is reflected in the National Infrastructure Plan”.
So DECC could be underestimating the costs of new infrastructure. The Treasury should publish a full assessment of the “expected overall impact on consumer bills” on new infrastructure, the NAO says.
Could well be higher, but not that high
It’s hard to know exactly how much investment will come forward in energy infrastructure over the next few years – or how much of that cost will be passed onto consumers. The government suggests a significant portion of it will be passed on, however.
The NAO says that infrastructure costs “feed into consumer bills in a number of ways”. It adds that it’s clear “this investment is a significant driver of bills”.
It seems likely from all this that a significant amount of the cost could well passed through to consumers, and that will increase bills. But will it push bills up by £600 as Sky News – and the Telegraph – suggest? Probably not.
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