Gas costs, not green measures, to blame for energy prices

A new report into the impact of low carbon measures on energy bills says they have only accounted for 16% of recent price rises.

A new report by Government advisors says that wholesale gas prices are to blame for rising energy bills, not so-called environmental policy costs.

The Committee on Climate Change (CCC) has analysed the impact of meeting the Government’s carbon reduction targets on energy bills.

It looked at dual fuel bills where customers use gas for heating and electricity for power. It found that the average bill had increased by £455 per household over the past six years, from £605 in 2004 to £1,060 in 2010.

Of this increase, it says that £380 is due to a combination of wholesale gas prices and supplier costs, increasing transmission and distribution costs, and increases in VAT.

The remaining £75 was due to low carbon initiatives, with £30 to support investment in low carbon power generation and £45 for funding energy efficiency schemes for homes.

Electricity customers to be hardest hit

However, the CCC forecasts a £110 increase in bills by 2020, with £100 of that to support investment in low-carbon power and £10 to support energy efficiency in homes. It also predicts that £15 per household will be needed to support investment in the power grid.

Households that use electric heating are likely to be hit harder by low carbon measures, but households that don’t use gas or electricity for heating are likely to face the same increases as dual fuel customers.

In November, the Department of Energy and Climate Change estimated that low carbon measures would increase electricity costs by 27% by 2020.

Can these increases be offset?

The CCC suggests a number of initiatives could actually result in energy bills remaining roughly the same as they are today in ten years’ time. It recommends replacing boilers with modern, fuel efficient models, more insulation, more efficient use of heating controls and replacing lights and appliances with newer, more efficient models.

Consumer body Consumer Focus said it agreed with the findings of the report. But it argued that limiting the impact of low carbon costs on future energy bills through greater energy efficiency was “a pretty steep mountain to climb”.

It called for extra Government funding for energy efficiency measures, increased funding for schemes for households affected by fuel poverty and greater transparency from energy companies. It also said that new competition in the energy market would help lower prices.

The Government is due to launch its Green Deal in October 2012, offering loans and subsidies to help make homes more energy efficient.

But Consumer Focus is urging people, particularly those over 70 or receiving benefits, to take advantage of current grants and subsidies on offer. You can find out more about these at the Energy Saving Trust's website

Friends of the Earth called for the Government to investigate the ‘Big Six’ energy companies and “their role in keeping the UK hooked on expensive fossil fuels”.

Industry regulator Ofgem recently published a series of proposals aimed at simplifying bills and tariffs for energy customers.

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