So what DOES the green tax on your energy bill actually pay for? The answer, as ROSS CLARK reveals, is a fiendishly complicated network of schemes that often backfire
As we enter the New Year, the British public faces a perfect storm of cost of living pressures: rising inflation and property prices and — perhaps most serious of all — rocketing energy costs.
According to Ofgem, households are paying an average of £1,277 for their gas and electricity — a figure sure to rise sharply over the coming months as increases in wholesale gas and electricity prices feed through into domestic bills and the Government’s price cap is raised.
Of this, green stealth taxes represent a significant factor. A fat 15.3 per cent — £195 a year — goes on ‘environmental and social costs’. On electricity bills alone, it’s a huge 25.5 per cent.
This covers a bewildering and ever-growing number of green schemes — some of which are anything but.
According to Ofgem, households are paying an average of £1,277 for their gas and electricity — a figure sure to rise sharply over the coming months as increases in wholesale gas and electricity prices feed through into domestic bills and the Government’s price cap is raised
This was the original, underhand scheme which forced consumers to subsidise renewable energy at a cost of £6.3 billion a year, paid by both domestic consumers and business users of electricity.
Energy suppliers are obliged to buy a certain number of Renewable Obligation Certificates (ROCs) for every megawatt hour (MWh) of electricity they sell to consumers.
The scheme, introduced in 2002, was closed to new generating plants in 2017, but consumers are still paying to fund contracts issued in the past.
Generators were awarded 20-year contracts, meaning that consumers will still be paying for the scheme until 2037.
The result of the policy is that wind and solar farms generate so much electricity on windy and sunny days that in 2020 they had to be paid £282 million in ‘constraint payments’ to turn off their turbines.
Contracts for Difference
This is a new scheme which replaced the Renewables Obligation in 2017. Operators of qualifying renewable energy plants (nuclear power stations are eligible) are guaranteed a ‘strike price’ for every MWh of electricity they generate.
If the wholesale market rate for electricity falls below the strike price, a public body called the Low Carbon Contracts Company makes up the difference.
In the most recent auction in September, the Government offered £265 million of subsidies. Needless to say, the bill ultimately falls on consumers.
Climate Change Levy
This is a straightforward tax on the burning of fossil fuels — paid by owners of gas and coal-fired power stations, and other industrial users.
The levy is 46p for every kWh of gas and 78p for electricity generated by fossil fuels, and raises £2 billion annually.
Green Gas Levy
As if gas-fired power stations — which still provided 35.7 per cent of our electricity in 2020 — were not taxed highly enough, the government has just dreamed up another levy, designed to subsidise the development of ‘biogas’: a fuel derived from vegetable matter which can be fed into the gas grid. The scheme begins in the spring.
The Climate Change Levy is a straightforward tax on the burning of fossil fuels — paid by owners of gas and coal-fired power stations, and other industrial users
This charge pays owners of domestic photovoltaic solar panels to generate electricity. Some lucky homeowners who bagged the early rates are receiving 50p for every kWh of electricity they generate — about four times the normal consumer price.
Worse still, they get paid even if they are not actually feeding it into the grid but using it themselves.
In 2019, £1.5 bn was paid out in feed-in tariffs, swelling consumers’ bills. These tariffs have been abolished for new domestic installations, but the ones applied ten years ago were valid for 25 years — so consumers will be funding them for many years to come
This is to subsidise owners of electricity storage and generating plants which can be brought onstream at short notice to make up for a shortage of wind and solar power.
When the government introduced the scheme in 2014 it was intended to boost the embryonic energy-storage industry.
But gas and even coal power stations have been paid eye-watering sums to generate electricity when there is a shortage from renewable sources — at one point in November, coal and gas plants were paid £2,000 per MWh to make up the shortfall — 40 times the usual market price.
With an annual cost of £1.2 bn, this is a horribly expensive consequence of having too much intermittent generating capacity.
Warm Home Discount
This pays out grants of £140 to 2.2 million low-income households. The £300 million cost is added to the bills of other consumers, so it’s a welcome relief for the less well-off but yet another charge on those who don’t qualify.
Energy Company Obligation
This compels energy companies to subsidise work to improve homes’ efficiency, by installing insulation. The grants are available only for households which have low incomes or are on benefits.
The Boiler Upgrade Scheme is yet another new scheme beginning this spring which will provide £5,000 grants for households to replace their oil and gas boilers with electric heat pumps
Other households don’t qualify for help but they are compelled to fund the scheme through their energy bills to the tune of £640 million a year. All the signs are that these schemes have paid for too much shoddy work.
Boiler Upgrade Scheme
This is yet another new scheme beginning this spring which will provide £5,000 grants for households to replace their oil and gas boilers with electric heat pumps — but many experts estimate a new air-source heat pump system will cost on average £10,000, including installation. Yet another burden on households that won’t achieve its objectives.
No prizes for guessing who pays for the £3.2 bn rollout of ‘smart meters’, which are meant to educate us about our energy use and cut our bills.
Yes, the cost is passed on to the consumer by the energy companies which install the meters. According to the Government, each electricity and gas meter costs £88 to install.
But it isn’t a one-off cost — older meters will have to be replaced soon because the government plans to switch off the mobile phone frequencies on which they operate.
No prizes for guessing who pays for the £3.2 bn rollout of ‘smart meters’, which are meant to educate us about our energy use and cut our bills
The costs don’t end there. There are a number of green schemes which are funded from general taxation:
Domestic Renewable Heat Incentive
A subsidy scheme for green central heating systems, which pays owners of heat pumps and biomass boilers up to 18.8p for every kWh hour worth of heat they generate — thus perversely rewarding people for turning up their heating.
But the scheme, which cost taxpayers £144.6 million in 2020/21, promotes biomass boilers and ground source heat pumps that are suitable only for large homes — and so is mostly a handout for the wealthy.
We may no longer be part of the EU’s wasteful Common Agricultural Policy (CAP). Yet the Government continues paying £3 bn a year in agricultural subsidies.
Were the subsidies going to promote food security that would be one thing. Yet much of the money has been committed to achieving the opposite: taking land out of production so it can be ‘rewilded’ — making us even more dependent on imported food.
These schemes are, essentially, handouts to wealthy landowners to create private nature reserves. Meanwhile, we are getting further and further from being able to feed ourselves. In 1984, Britain produced 78 per cent of food consumed here. In 2021, that was already down to 60 per cent, and looks set to nose-dive thanks to rewilding.
Ross Clark’s satirical novel on climate change, The Denial, is published by Lume Books.
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