By Paul Homewood
This is a hopelessly muddled article by Emma Gatten, who clearly has not got a clue what she is talking about!
The same also applies to the MPs mentioned.
Energy giants will be handed more than £1.2 billion from wind and solar farms as gas prices soar in the coming months, despite the cost of living crisis hitting household bills.
When electricity prices are low, wind and solar farms are paid subsidies in the form of green levies taken directly from household bills. Last year, this amounted to around £30 of the total £176 of green levies included in energy bills.
When wholesale electricity prices are high, renewable producers pay money back to the Government. But rather than the money going directly to households, it is passed back to energy suppliers, The Telegraph has learnt.
In the first six months of this year, wind and solar producers are predicted to pay back £1.2 billion as gas prices soar, pushing up the wholesale electricity price – a potential saving of around £40 per household.
The total figure is set to rise as renewable energy becomes cheaper to produce and could hit as much as £26 billion in 10 years – a saving of up to £330 per household, if gas prices remain high, according to analysis shared with The Telegraph.
‘Handy dose of economic aspirin’
Senior Tory figures have called for reform of the green subsidy system, to allow the dividends from cheap renewables to be passed through directly in the form of lower household bills.
“Most UK renewable energy costs less than it used to, just as international gas prices are going through the roof. So recycling the savings from renewables straight into everyone’s energy bills makes sense,” John Penrose, a Conservative MP, told The Telegraph.
“It would create a built-in price stabiliser for hard-pressed households and businesses, giving everyone a concrete example of how net zero can help our finances."
He said it would also "provide a handy dose of economic aspirin for the Chancellor, who would have one less headache to deal with in his budget next month”.
Sam Hall, the director of the Conservative Environment Network, said: "With consumers reeling from surging fossil fuel prices, the Government should look at whether payments from cheap British renewables can be returned to bill payers to relieve the cost of living.”
Philip Dunne MP, chairman of the parliamentary Environmental Audit Committee, said it was important that these dividends were passed on to households.
“As renewable projects scale up, it is likely that bills will be reduced for millions of consumers as renewables are often cheaper than high carbon energy such as oil and gas,” he said. “Suppliers must make sure that this green dividend is passed on in full to bill payers as a return on their investment in renewables."
Wind is now Britain’s second biggest power source
The renewable subsidy system – in place since 2014 – paid back for the first time last September, when a gas price crunch caused by a spike in demand and stymied supply in the wake of the coronavirus pandemic caused wholesale electricity prices to rise significantly.
Prices of gas, which is used to produce around 40 per cent of the UK’s electricity, have risen as much as 10-fold year-on-year since the Russian invasion of Ukraine.
Renewable producers receive a pre-agreed price per megawatt hour (MWh) for the electricity they produce, under the Government’s scheme to encourage the development of wind and solar.
Some of these prices are as low as £68 per MWh – well below the wholesale prices they receive for electricity, which are linked directly to the price of gas. On Friday, prices reached £174 per MWh. Projects expected to start producing next year are as low as £50 per MWh.
A 54 per cent rise in the energy price cap in April will cause dual bills to rise to around £2,000. It is expected to push more than a million households into fuel poverty.
Ofgem, the regulator, has said bills could rise again in October to a “devastating” £3,000 a year, as the impact of the Ukraine crisis continues to be felt.
Simon Cran-McGreehin, of the Energy and Climate Intelligence Unit (ECIU), said households were seeing the benefit of cheaper renewables, but indirectly.
He added that when the renewable subsidy system was designed, it was assumed that the levies would always be paid out to producers.
“The gas crisis has blown that thinking out of the water,” he said. “Given that gas prices could remain high for a number of years, a rethink could be appropriate.”
Thanks to the falling costs of wind and solar, dividends from cheap renewables could easily hit up to £7 billion if a similar gas price crunch hits in five years and up to £26 billion in 10 years – a saving of around £290–£330 per household, according to analysis by the ECIU.
Gordon Edge, the head of strategy at the Low Carbon Contracts Company, which manages the scheme – known as Contracts for Difference – said the gas price hike had taken the industry by surprise.
“We were expecting to see this eventually, but not quite yet. We are still working through exactly all of the implications. But for now it is working exactly as it is meant to,” he said.
A spokesman for Energy UK, which represents suppliers, said the surplus so far had been offset by “additional costs”.
The spokesman added: “However with more money looking likely to be returned from the scheme, Ofgem is set to consult on how to reflect this in its next price cap decision and we look forward to working with them on this.”
First of all, let’s deal with Emma Gatten’s grossly misleading comment:
“When electricity prices are low, wind and solar farms are paid subsidies in the form of green levies taken directly from household bills. Last year, this amounted to around £30 of the total £176 of green levies included in energy bills. “
She is referring to the Contracts for Difference scheme, which was projected to cost £2.1 billion in 2021/22.. However she does not mention that most of the subsidies for wind and solar farms are covered by Renewable Obligations and FITs, which cost consumers another £8.0 billion.
In total, renewable subsides amount to £10.2 billion a year, equating to £370 per household. About a third of this appears on household electricity bills:
Rant over!
But what on earth is Gatten babbling on about when she complains that £1.2 billion of rebates are being handed over to “energy giants”, something that John Penrose repeats?
As they should both know, any savings returned under CfDs are passed on to consumers via the CfD Supplier Levy, just as subsidies are. Oersted produced this factsheet for its business users to show how it works:
https://orsted.co.uk/business/knowledge-hub/your-invoice
The Levy is actually operated by the National Grid. As I say, the above is for business customers. The only difference with residential customers is that their bills are now regulated under the Energy Price Cap, set by OFGEM.
What this means in practice is that OFGEM have to take a view two months before the cap takes effect as to what energy costs will be, and that includes the cost of the Levy.
It may be that they have underestimated the savings on this occasion, in which case it will be adjusted for in six months time.
However, reading behind the lines of the Telegraph article, particularly the comments by Energy UK, what has happened is that the savings have been more than offset by “additional costs”.
So the idea that “energy giants” are somehow profiteering to the tune of £1.2 billion is simply nonsense.
Why on earth does the Telegraph delegate its reporting on energy matters to it Environment Editor? She may know all bout trees and toads, but she regularly shows that she does not have the first idea about energy.
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March 12, 2022 at 01:00PM
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