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The impact of energy and climate change policies on a household energy bill in 2020
By: Christalla Kyriacou

On 23 November, DECC published its updated analysis of the estimated impact of energy and climate change policies on gas and electricity prices and bills paid by UK energy consumers .  Alongside this report, we published the chart below showing that the estimated impact of policies in 2020 is for household energy bills to be, on average, 7% or £94 (real 2010 prices)lower than what they would have been in 2020 if these policies were never introduced.

Although policies are estimated to add £280 to the costs of energy, this is more than offset by the £373 that is reduced by policies – resulting in a net reduction of £94 (rounded to nearest £).

The £280 increase in costs is driven by: 

  – The costs of obligations on retail energy suppliers to:

• support low-carbon electricity generation (e.g. through the Renewables Obligation (RO), Electricity Market Reform (EMR) and small-scale Feed-in-Tariffs (FITs));
•  fund subsidised insulation and heating measures through the Energy Company Obligation (ECO);
• fund rebates on electricity costs for households eligible for a Warm Home Discount;
• fund the rollout of Smart Meters to households across the UK.

 - The costs incurred by power generators of purchasing carbon allowances as part of the EU ETS and the additional levy to meet the Carbon Price Floor which affect the wholesale cost of electricity;

 - The annual repayment cost if a household takes up a Green Deal measure.  This cost is only incurred if a household takes up a measure through a Green Deal and the charge for the Green Deal should not exceed the energy bill saving.

 - An increase in gas (or other heating fuel) consumption to maintain the same surrounding temperature as more efficient appliances (such as TVs and fridges) emit less heat as a result of Products Policy.  This effect will generally not exceed the value of the savings delivered through Products Policy.

The £373 reduction in costs is driven by:

- Energy efficiency savings as a result of:

•  more households taking up insulation measures through policies such as the Carbon Emission Reduction Target (CERT), Community Energy Saving Programme (CESP), Green Deal and ECO. The savings in the chart are averaged across all households (including those which do not take up measures).  A household which takes up an insulation measure stands to save more than the average.
•  better information provided through Smart Metering.  By 2020, all households in the UK will have received a Smart Meter and will be able to make more informed energy consumption decisions.
•  stricter energy efficiency standards for all energy using products (such as TVs and fridges) bought within the EU as a result of Products Policy.  All households in the EU stand to make these savings when purchasing products sold within the EU.

 - Rebates on the electricity bill of eligible households as a result of the Warm Home Discount.  The chart shows the rebate averaged across all households (including those who are not eligible). An eligible household currently stands to receive a rebate of £120 this winter.

 - Lower wholesale electricity costs than would have otherwise prevailed as a result of more low-carbon generating capacity entering the market which has a lower marginal cost. All households stand to benefit from these savings.

 

So what is the impact on a household’s energy bill in 2020 if they don’t take up an insulation measure and are not eligible for a Warm Home Discount rebate?

The average impact for households that do not take up an insulation measure and are not eligible for a Warm Home Discount rebate is an increase of £44, not £280.

The cost of the Green Deal loan repayment would not apply if a household does not choose to take a Green Deal funded measure.  In addition, all households stand to benefit from lower wholesale electricity costs as a result of the RO and EMR, every household in the UK will have a Smart Meter by 2020 and all households in the EU stand to benefit from Products Policy.

The estimated impact is therefore:

• £s added through policies less Green Deal loan repayment = £280 – £20 = £259
• £s saved from policies which benefit all UK households = £20 + £37 + £158 = £215
• Net Impact = £259 – £215 = +£44

 

How much can households who take up an insulation measure expect to save?

Evidence suggests that cavity wall insulation can save at least 2.2MWh of energy per year (generally gas or some other heating fuel) and for a typical loft insulation at least 0.6MWh per year.

In our November report, we estimate the average household gas price in 2020 to be around £47/MWh.  This means that these measures could save at least £104 and £28, respectively, in 2020.

Alternatively, a household with Solid Wall Insulation could save around 5.9MWh which, in 2020, could equate to a saving of around £278.

 

What is the impact of policies on prices and bills now?

The costs of Government policies are estimated to represent around £89 (7%) of an average household energy bill (before any rebates) in the UK in 2011. However, accounting for improvements in energy efficiency as a result of policies and the receipt by eligible households of a Warm Home Discount rebate, energy and climate change policies are estimated to be adding just 2%or £19 on average to household energy bills in the UK in 2011 (compared to bills in the absence of these policies).

 

Note:
Please note that the estimated impacts of each policy in the infographic will differ from the marginal impacts of policies estimated in their individual impact assessments.  For further details on the reason for these differences, please refer to p. 60 of the November report.

Filed under: Electricity, Energy Bills, Oil and gas, Prices
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Comments: 3 Comments on The impact of energy and climate change policies on a household energy bill in 2020
Posted on: Jan 12 2012

3 Responses to “The impact of energy and climate change policies on a household energy bill in 2020”

1. peter dublin says:

   May 24, 2012 at 6:11 pm

   1. Relevantly lowering energy use and emissions and saving money for consumers:
   State control of grids within which private service providers compete openly and fairly.
   Competition – with whatever emission parameters one desires –
   ensures lowest efficient energy use by providers to keep down their own costs and prices for consumers (Ceolas.net)

   2. Irrelevant energy efficiency policy:
   Energy efficiency regulations on buildings, washing machines, light bulbs etc.
   Stimulated Market Competition, or Taxation that can help pay for price lowering Subsidies on alternatives, are both better than regulations (exemplified with light bulbs, http://ceolas.net/#li23x):
   Not just to keep choice, and not just to lower energy use and emissions, but again, to do so at the lowest possible cost to government and consumers – and regardless of whether one is a right wing (market) or left wing (tax) politician.

   Reply
2. The mystery of the anti-wind farm report that is not anti-wind farm | RenewaBlog says:

   May 23, 2012 at 4:29 am

   [...] DECC spokesman later pointed me to its brightly coloured blog, which effectively explains its statement – if only Calor Gas had looked there first, it could [...]

   Reply
3. D Macdonald says:

   January 12, 2012 at 8:07 pm

   O dear! Why do I believe the top line additional cost (tax) and not have any faith in the expected bottom line “savings”? Could we not all just change TV’s per Product Policy, forgo all the rest and save £158 per year?

   Reply