Grant Shapps, the energy
secretary, vowed to give Britain the “cheapest energy in Europe” as he set out
to overhaul the power system as part of the push to go green.
For struggling households and businesses across Britain, the promise was
doubtless a welcome one. But it was also a tacit admission that they have long
been saddled with some of Europe’s highest bills.
Industrialists including Sir Jim
Ratcliffe have bemoaned the huge costs faced by energy
intensive businesses, while households have been better off in a raft of
countries on the Continent.
Data suggest this has had an outsized effect on the UK economy. Inflation in
February was 10.4pc when energy prices were included, according to official
statistics – but a much lower 7.6pc without them.
In the eurozone, inflation including energy bills was 8.5pc. But excluding
them, it would actually have been higher than in Britain at 7.8pc.
A toxic
combination of net zero charges and subsidies means that
unfortunately for Shapps, there are few quick fixes if he wants to meet his
goal.
Green levies
The energy bills households and businesses pay are split into two parts – for
the gas that heats boilers, and the electricity that keeps the lights on. These
are very different markets.
The price of each to the end consumer is made up of the wholesale price of the
product, as well as fees and taxes lumped on top.
Wholesale electricity prices in Britain had been higher than much of Europe for
several years before the energy crisis, in large part owing to a move away from
coal in favour of less polluting but more expensive sources
of power.
The UK introduced extra carbon taxes – fees paid by a polluter for every tonne
of carbon dioxide they emit – in 2013, to push electricity generators away from
coal. Meanwhile, in the European Union, the price paid for carbon fell.
It meant UK power generators paid an initial minimum £16 per tonne of carbon
dioxide, encouraging them to swap coal-fired stations for lower-carbon natural
gas, biomass, or move into wind power generation.
In the EU, carbon costs at one point fell as low as €2.75 (£2.41). Britain’s
higher charges have been a success in terms of cutting carbon emissions. The UK
generated around 2pc of its electricity from coal in 2021, compared to about
30pc in Germany.
However, the extra carbon
taxes have added to wholesale electricity prices as
generators were forced to charge more to cover their costs.
For example, in 2021, average electricity wholesale prices in Britain were £113
per MWh, compared to €96 per MWh in Germany.
“Within Europe, wholesale prices have been more expensive in Britain basically
because of the higher carbon price,” says Tom Smout, senior associate at Aurora
Energy Research.
By the time electricity reaches the consumer, it also includes further levies
on top of the wholesale price.
These levies account for about 8pc of today’s UK domestic electricity bills,
according to analysis by the Energy and Climate Intelligence Unit – equivalent
to £131 per household.
The bulk of these costs have been spent on subsidising wind
farms. There are also fees to insulate homes and help
vulnerable households with their energy costs.
Britain has resisted calls to remove green levies despite the jump in overall
bills.
In contrast, Germany scrapped a controversial renewable energy levy last year,
a move expected to save the typical household an annual €200, with subsidies
instead funded by public money.
Full story
via climate science
April 8, 2023 at 02:04AM
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