By Jim Pickard and Elizabeth Rigby
The coalition is heading for a fresh dispute over green energy after a call
by Downing Street to water down climate commitments as part of efforts to
keep power bills down.
Senior Conservatives have put under review several green policies in the
last fortnight in response to Ed Miliband’s conference pledge to freeze
energy bills in 2015.
The drive to counter the Labour leader’s new policy could see cuts to the
£1.3bn annual Energy Companies Obligation (Eco), a levy on energy companies
to insulate the homes of people living in fuel poverty.
But any attempt to water down or end the Eco, which is set to run until
2015, will meet stiff opposition from the Liberal Democrats. “The Tories
keep talking about energy prices but we are talking about bills. Insulating
homes will get costs down in the long run,” said one senior Lib Dem.
Ed Davey, the Lib Dem energy secretary, is expected to fight hard to
protect the policy, according to Whitehall officials.
The Eco was introduced in January 2013 to reduce the UK’s energy
consumption by funding energy efficiency improvements worth around £1.3bn
every year.
It is opposed by leading energy companies, which have told the government
that the programme could add as much as £100 a year to household power
bills. That is nearly double the costs the energy department forecast for
the Eco when it launched.
The energy groups have called on the government to review the programme to
make sure it is cost-effective and does not inadvertently make fuel poverty
worse.
Some Eco costs are borne by homeowners and others by energy companies,
which can then pass them on to customers by raising bills.
Other green energy schemes in the line of fire this month include the
carbon price floor, which was just introduced by the UK to ensure that
industry pays a set amount for carbon pollution.
The new tax starts at £16 per tonne of carbon emitted this year, rising to
£30 by 2020.
The price floor is expected to raise more than £4bn for the government over
the next four years.
That means the Treasury is likely to resist any attempt to make the scheme
less onerous because it would mean a loss of income.
The Tories keep talking about energy prices but we are talking about bills.
Insulating homes will get costs down in the long run
– Senior Liberal Democrat
Tory strategists are also considering whether there could be a further cut
in the renewable obligation certificates (Rocs), a form of subsidy for
green energy. These place an obligation on UK electricity suppliers to
source an increasing proportion of the electricity they supply from
renewable sources.
Last year, the Treasury and energy department agreed a small cut in Rocs –
along with a “review point” in 2013-14 to assess the scope for a further
reduction.
Such a cut is now looking increasingly likely, although the impact would
not feed into bills before the general election.
“The capacity being built now would still be eligible for the higher
subsidies . . . The cut would only affect projects coming further down the
line,” said a Whitehall official.
The debate comes just weeks after RWE npower warned that energy bills would
rise by more than 19 per cent by the end of the decade partly because of
green policies.
The company said the average household energy bill could increase by £240
to £1,487 by 2020, driven by the impact of unprecedented investment in new
infrastructure and the cost of improving energy efficiency in people’s homes.
But the government said that rising global gas prices were more to blame
for rising bills than green policies.
Tory and Lib Dem ministers have repeatedly clashed over how to balance
support for renewable power with keeping prices down and increasing energy
security.
Copyright The Financial Times Limited 2013.
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