Chris Huhne is deluded and the Government are ripping off consumers

December 16, 2010 10:41 AM

This morning, Chris Huhne has told the Today programme that the idea climate change policy will drive up electricity prices by £500 is "absolutely bonkers".  That estimate comes from the price comparison website uSwitch, which argues the £200 billion in investment needed will put £500 on top of current bills of around £1,157.  DECC can dispute the figure but to get arrogant about it is a very bad idea.  uSwitch's estimates are actually quite similar to the numbers produced by market experts like Citigroup Capital Markets.

Climate change policies are already a big part of consumers' bills.  Here are Citigroup's latest estimates of the new costs  we are set to face, from their September 2010 report The €1trn Euro Decade - Revisited:
"Taking the higher savings [from reduced fuel costs] figure would give a net additional revenue requirement of £16.4bn. Given that total revenue to the UK electricity sector in 2009 was £31bn, of which £15bn (48%) was raised from retail customers and £16bn (52%) from industrial and commercial. In total therefore we estimate that the UK electricity sector would need total revenue in 2020 of £47bn. If the split between retail and I&C customers were the same as 2009 then retail customers would be paying around £330 per household additional costs (2010 prices). This would represent a 52% real terms increase in domestic electricity bills over their June 2010 level of £500 as calculated by Ofgem. This would take the duel fuel bill from today’s £1,120 to £1,604 per annum."

Efficiency savings won't fix the problem:
"The UK government is expected to launch its ‘Green Deal’ program in the next few months. This program aims direct £10’s bn into home energy efficiency over the next decade. The hope is to reduce home energy use, specifically space heating. This would help reduce the impact on the rise in electricity bills for duel fuel customers. If gas demand can be reduced by 15% that should save around £93 pa for the average duel fuel customer. The duel fuel bill would then be £1,511 – which still represents a 35% real increase. And it is worth noting that customers will be expected to fund the cost of the insulation work under the Green Deal, which could off-set the cost savings."

It is the Department of Energy and Climate Change that is out on a limb here, in not taking the likely costs of a massive expansion of offshore wind and other expensive sources of energy seriously.  With even more support for expensive sources of energy like offshore wind announced (see the BBC report) today's announcements will exacerbate the problems for consumers.  Last year, we set out how a more realistic climate change policy could save consumers and industrial employers a fortune.  Just stop insisting that we use the most expensive sources of power and pay extravagant subsidies.  The Government are going in the other direction.

The new plans today, with guaranteed high prices in the energy sector, shift huge amounts of risk off energy companies and onto ordinary consumers.  They will guarantee higher prices in the years to come and still aren't going to create the conditions needed for lower cost sources of energy like nuclear to go ahead.  Investment in nuclear needs greater protection against construction risk, the chances that the projects will go over time and over budget.  The only low carbon energy we have got so far has come from specific subsidies, like the prohibitively expensive Renewables Obligation, and not the carbon price.  That isn't going to change.  We will just accelerate a new dash to gas that is happening anyway.

Today's announcements put the final nail in the coffin of the idea that the EU Emissions Trading System (ETS) is anything but an unmitigated failure. When we first released our report on the ETS I pointed out that calls to fix the price were an admission of failure.  I was told that calls to fix the carbon price were just nuclear industry lobbying and wouldn't be taken seriously.  The whole point of a cap and trade scheme like the ETS is that you don't have to set the price, you limit the volume of emissions and let the market set the price.  If you don't trust the resulting market price, and the Government have fixed it today, then the whole thing is a massive waste of money and effort:  all the multi-billion windfall profits for energy companies; millions of pounds spent administering the scheme; profits for traders; and expensive trading losses at institutions like hospitals.

This is a shocking failure of policy and betrayal of the interests of poor consumers and manufacturing workers.  Politicians of all parties who have uncritically assented to these policies need to start doing their job and holding the Government to account.  Poor families and elderly people shivering in their beds this winter have Chris Huhne, and Ed Miliband before him, to thank.This morning, Chris Huhne has told the Today programme that the idea climate change policy will drive up electricity prices by £500 is "absolutely bonkers".  That estimate comes from the price comparison website uSwitch, which argues the £200 billion in investment needed will put £500 on top of current bills of around £1,157.  DECC can dispute the figure but to get arrogant about it is a very bad idea.  uSwitch's estimates are actually quite similar to the numbers produced by market experts like Citigroup Capital Markets.

Climate change policies are already a big part of consumers' bills.  Here are Citigroup's latest estimates of the new costs  we are set to face, from their September 2010 report The €1trn Euro Decade - Revisited:
"Taking the higher savings [from reduced fuel costs] figure would give a net additional revenue requirement of £16.4bn. Given that total revenue to the UK electricity sector in 2009 was £31bn, of which £15bn (48%) was raised from retail customers and £16bn (52%) from industrial and commercial. In total therefore we estimate that the UK electricity sector would need total revenue in 2020 of £47bn. If the split between retail and I&C customers were the same as 2009 then retail customers would be paying around £330 per household additional costs (2010 prices). This would represent a 52% real terms increase in domestic electricity bills over their June 2010 level of £500 as calculated by Ofgem. This would take the duel fuel bill from today’s £1,120 to £1,604 per annum."

Efficiency savings won't fix the problem:
"The UK government is expected to launch its ‘Green Deal’ program in the next few months. This program aims direct £10’s bn into home energy efficiency over the next decade. The hope is to reduce home energy use, specifically space heating. This would help reduce the impact on the rise in electricity bills for duel fuel customers. If gas demand can be reduced by 15% that should save around £93 pa for the average duel fuel customer. The duel fuel bill would then be £1,511 – which still represents a 35% real increase. And it is worth noting that customers will be expected to fund the cost of the insulation work under the Green Deal, which could off-set the cost savings."

It is the Department of Energy and Climate Change that is out on a limb here, in not taking the likely costs of a massive expansion of offshore wind and other expensive sources of energy seriously.  With even more support for expensive sources of energy like offshore wind announced (see the BBC report) today's announcements will exacerbate the problems for consumers.  Last year, we set out how a more realistic climate change policy could save consumers and industrial employers a fortune.  Just stop insisting that we use the most expensive sources of power and pay extravagant subsidies.  The Government are going in the other direction.

The new plans today, with guaranteed high prices in the energy sector, shift huge amounts of risk off energy companies and onto ordinary consumers.  They will guarantee higher prices in the years to come and still aren't going to create the conditions needed for lower cost sources of energy like nuclear to go ahead.  Investment in nuclear needs greater protection against construction risk, the chances that the projects will go over time and over budget.  The only low carbon energy we have got so far has come from specific subsidies, like the prohibitively expensive Renewables Obligation, and not the carbon price.  That isn't going to change.  We will just accelerate a new dash to gas that is happening anyway.

Today's announcements put the final nail in the coffin of the idea that the EU Emissions Trading System (ETS) is anything but an unmitigated failure. When we first released our report on the ETS I pointed out that calls to fix the price were an admission of failure.  I was told that calls to fix the carbon price were just nuclear industry lobbying and wouldn't be taken seriously.  The whole point of a cap and trade scheme like the ETS is that you don't have to set the price, you limit the volume of emissions and let the market set the price.  If you don't trust the resulting market price, and the Government have fixed it today, then the whole thing is a massive waste of money and effort:  all the multi-billion windfall profits for energy companies; millions of pounds spent administering the scheme; profits for traders; and expensive trading losses at institutions like hospitals.

This is a shocking failure of policy and betrayal of the interests of poor consumers and manufacturing workers.  Politicians of all parties who have uncritically assented to these policies need to start doing their job and holding the Government to account.  Poor families and elderly people shivering in their beds this winter have Chris Huhne, and Ed Miliband before him, to thank.

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