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:
- 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:
- 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:
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).
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.