Posted on: 24/05/2016
The cost of policies to support renewable electricity and ensure security of supply will increase sharply over the next couple of years despite cuts to green subsidies, according to research by consultancy Cornwall Energy.
The research found that that households will, by 2017-18, be paying nearly 84% more for four key government policies than they were two years earlier.
Cornwall Energy said the increase, which will push the cost of the four main schemes to over £86 (in 2015-16 prices) on the average household bill by 2017-18, will primarily be driven by the overlap between the government's policies to support large-scale renewables generation. As the last green electricity projects become operational with subsidies from the Renewables Obligation, the first developments will come online under the new Contracts for Difference scheme that was implemented by the coalition government.
The pressure on bills will heightened by the government's decision to exempt energy-intensive industries from the cost of renewables policies from 2017, with households and other businesses taking on higher charges to compensate.
Customers will also begin paying for the government's energy security scheme, the Capacity Market, from 2017-18. This follows the decision to bring the scheme forward by a year in order to ease concerns over Britain's tightening electricity margins.
By 2020-21, the analysis suggests that, overall, the four policies will cost each household nearly £105--124% higher than in 2015-16.
Policy costs ‘only moving in one direction’
Cornwall Energy said the increases come despite the government implementing policy reforms that have almost brought its projected spending on low-carbon subsidies back within the budget set in 2012.
It forecasts that by 2020-21, £7.7bn will be spent on the three renewables subsidy schemes whose costs fall within the Levy Control Framework (LCF) spending envelope. This is still around £100mn over budget, but significantly lower than the £1.5bn overspend that was projected last July by the Office for Budget Responsibility.
Nevertheless, the figures show that the government is likely to exceed its LCF budget in every year from 2016-17, and by as much as £600mn in 2017-18.
Cornwall Energy Managing Director Jo Butlin said: "While the future path of wholesale prices remains uncertain, policy costs are moving only in one direction. Our research shows a confluence of factors serving to push these costs up notably in the next couple of years, though important drivers that could yet change the outlook remain beyond anyone's control."
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