Today I saw a post by Martin Lewis on Facebook about how the October Energy Price Cap is now predicted to rise. The post has led a number of people to comment that ‘net zero’ is to blame. It isn’t.
This isn’t entirely unpredictable given that the Right seems to have made ‘net zero’ and climate action more generally their number one enemy, and regularly lying about how much it costs is just one tool in their arsenal. Of course, they don’t like to talk about the fact that fossil-fuel companies and people who have a huge financial interest in them donate hundreds of thousands of pounds to Reform. Obviously any organisation that relies heavily on fossil fuel money should have their opinions on net zero taken with a huge pinch of salt - between 2019 and 2024, Reform received more than 90% of its funding, £2.3 million, from individuals and companies linked to polluting industries and climate science denial.
In any case, what of these ‘green’ levies? On average they account for 11% of a household’s energy bill. This is not an insignificant amount of money, but the misconception is that they are going into the pockets of wind farm owners and the like. This is not the case. As well as the promotion of renewables they pay for social policies such as help to install energy efficiency measures in low-income and vulnerable households, giving the elderly discounts on winter heating, and so on. This is a form of wealth redistribution which, while not perfect, helps the most vulnerable.
Investing these funds into energy saving measures and insulation in the homes of the old and vulnerable literally saves lives - people can afford to heat homes rather than not heating them. Not only that, but once these measures are installed the amount paid for energy is much reduced, with the reduction far in excess of any environmental levies applied. In an ideal world everyone would adopt these energy saving measures immediately, but this is difficult for those on low incomes. The levies make it possible.
The proportion of the levies that goes to investment in renewable capacity has been an excellent investment, with the cost of renewable energy decreasing significantly over a short period of time. With this increase in renewable capacity also comes a reduction in the reliance on foreign gas. In an increasingly unstable world energy security is ever more important, and it is impossible for us to be self-sufficient in energy using fossil fuels. North Sea gas, much trumpeted as a solution by the Right, is in decline and what is produced is sold on the open market.
Nuclear, also much touted as a solution, also does not provide energy security - it seems unlikely that we will find UK uranium deposits to mine. Not only that, but we are now reliant on foreign corporations and governments to build any new nuclear generation capacity, as we have seen at Hinkley Point C. The Hinkley project has massive overruns in both construction time and budget - it is now projected to cost £46bn and will reach full generation capacity more than six years late. When it is finished it will be generating the most expensive electricity in the world, and we’ll be obliged to pay inflated rates for decades, even if we roll out massive amounts of renewables generating far cheaper power. There’s little reason to believe that other nuclear generation projects in the UK will fare any better other than wishful thinking.
Generation from fossil fuels is not a cost saving, and nor is nuclear. But it’s even worse than that, because the massive subsidies both of these receive from the taxpayer are not included in any sort of ‘levies’ on our bills. Yet these subsidies exist, and come in the form of higher taxes we pay for everything.
And when fossil fuel or nuclear plants reach end of life it’s the taxpayer that ends up footing the bill. It is estimated that UK nuclear reactor decommissioning costs the public at least £3bn annually for as long as we have nuclear reactors, plus 40 years beyond that. But it’s not just nuclear decommissioning that costs the UK taxpayer. The UK government provides substantial subsidies to the North Sea oil and gas industry, despite commitments to phasing out fossil fuel subsidies. These subsidies, primarily in the form of tax breaks for exploration, production, and decommissioning, are estimated to be £13.6 billion a year.
Despite this, domestically produced fossil fuels like North Sea gas bring little into the Treasury. The UK has one of the lowest effective tax rates on offshore oil and gas profits in the world, with the Treasury receiving less than $2 a barrel in 2019 compared to the nearly $22 for every barrel in Norway. Profits are largely kept by the multinational oil companies with little revenue going to support our vital public services.
So what do we do to reduce bills? The answer is obvious: changing the way we work out prices. In the UK, electricity prices are primarily set using a system called "marginal pricing". This means the price of electricity is determined by the cost of the most expensive power plant needed to meet demand at any given time. In practice, this often means that the price of gas-fired power plants, which are frequently used to meet peak demand, sets the price for all electricity, even if a significant portion of the electricity is generated from cheaper sources like renewables.
The government has just announced a review of energy policy, but the plans are not very ambitious. For instance, we need far more action on renewables. Why not mandate that all new buildings must have enough solar PV to generate what the building needs, plus battery storage? This would make the grid more resilient and reduce demand peaks, and the cost is minimal as a percentage of the build price. The government is reluctant to make demands on developers thanks to, presumably, significant lobbying, but such action must be taken. What we do know is that we can’t continue to rely on market pressure as long as the costs of carbon emissions are externalised.