Policy Exchange - Household energy bills have risen by £120 due to ill thought through energy and climate policies

16 Jul 2015 01:04 PM

Policy Exchange argues that policymakers should prioritise “affordability, affordability, affordability” by beefing up consumer oversight of policy decisions.
 
The average household energy bill has risen by £120 over the past five years purely due to ill thought through energy and climate policies which fail to put affordability at the heart of policymaking.
 
A new report, The Customer is Always Right, by leading think tank Policy Exchange argues that while the energy companies have been accused by various bodies, including politicians, for not doing more to lower bills, government is as much to blame. 
 
It argues that policymakers have, for too long, failed to strike the right balance between energy affordability and decarbonising the economy. While reducing the UK’s carbon emissions remains critical, the paper says that reducing energy bills must also be at the forefront of every single future policy decision taken by the government.
 
The research found:

• The average dual fuel energy bill has increased over the past five years (2009-2014) by £240 per household to £1340 a year. Half the increase in bills was due to factors controlled by government rather than the energy companies.
• Government energy and climate policies in the form of carbon taxes, subsidies for renewable energy and energy efficiency grants now make up 7% of the average bill and network costs account for a further 22%.
• The increase of policy and network costs explains half of the increase in bills seen over the past 5 years with policy costs increasing by more than 200% between 2009 and 2014, adding more than £60 to the average bill, and increases in network costs adding a further £60.
• Forecasts show that domestic electricity prices could increase by a further 18% between now and 2020 in real terms due to further increases in policy costs.
• Conversely, wholesale costs did not contribute to the increase in bills over the period 2009-2014 and are now falling.

The report warns that the Department for Energy and Climate Change (DECC) has already run out of money. Spending caps governed by the ‘Levy Control Framework’ have been breached in all of the past three years with the report suggesting that the spending cap to 2020 will also be breached in the absence of changes to policies.
 
The paper sets out a number of recommendations including:

• Create a clearer voice for consumers in energy policymaking, by strengthening the role of consumer advocates such as Citizens Advice.
• Retain the system of carbon budgets but avoid setting additional distorting technology or sector specific targets.
• Scrap the 2020 Renewable Energy Target and resist calls for a 2030 power sector decarbonisation target.
• Revamp the Green Deal to maximise energy efficiency and reduce bills.
• Focus decarbonisation efforts on mature, low cost generation technologies which have the potential to be zero subsidy by 2020 or shortly thereafter.
• Curtail the most expensive subsidies, setting a cap on the maximum subsidy available under any mechanism.

Richard Howard, author of the report, said:
 
“Household energy bills have soared in recent years. This is not, as some have suggested, due to “rip off energy companies”, but in fact in large part due to government policy. Over the past five years energy and climate policy and network costs have pushed up energy bills by £120 for the average household.
 
“Government should take its decarbonisation commitments extremely seriously but must also recognise that what consumers really want is affordable energy. That is why we are proposing that there should be stronger consumer oversight over policy decisions, and that government should look at ways to meet energy and climate objectives at lower cost to consumers.”  
 
View report:

http://www.policyexchange.org.uk/images/publications/the%20customer%20is%20always%20right.pdf