Article written by Emma Gatten and Rachel Millard; originally published on The Telegraph Online.
Cheaper green energy will not reduce consumer bills for at least a decade, experts said yesterday, as millions faced paying up to £153 more under the largest price rises since 2013.
A Tory MP who led the campaign for the energy price cap said on Friday that the system was not working, after Ofgem said 15 million households could expect bills to rise around 12 per cent.
Worldwide gas price rises linked to the Covid-19 pandemic , stymied Russian supply and carbon taxes on coal could see direct debit customers pay an extra £139 annually and those on prepaid tariffs an additional £153.
The price rises come despite the UK incorporating record levels of relatively cheap British renewable power in its electricity mix last year, because tariffs are linked to more expensive global gas prices.
John Penrose, the Tory MP who led the campaign for the energy price cap in 2017, said it “isn’t doing what it needed to do”, partly because it was only re-set every six months, whereas wholesale costs could change much more quickly.
They are particularly volatile as countries come out of the pandemic.
The cost of offshore wind power has dropped by 70 per cent since 2014 and expected costs for onshore and solar power have also been slashed.
But costs are expected to continue to rise even if gas and renewable electricity prices drop, as consumers face paying extra green levies into the 2030s , when the Government hopes to have enough offshore wind power to supply every home in the UK.
The Government’s climate change committee (CCC) says costs will rise over the next decade as consumers pay for historic investment in low-carbon infrastructure.
It estimates that potential new low-carbon investments including Hinkley Point C and carbon capture projects will also add over £100 to the average annual energy bill by 2030, while expected carbon taxes on gas could add further costs in the near term.
Tom Edwards, an analyst at Cornwall Energy Insight, said new onshore wind and solar power was the cheapest way to add capacity to the UK grid.
The CCC expects energy costs to fall in the long run as the UK moves away from fossil fuels to hit its 2050 net zero targets.
It said energy efficiency improvements were expected to offset the rise in costs, but there are concerns in Government about the ability of many homeowners to pay for measures such as insulation in their loft or walls.
The Government has delayed the publication of its heat and buildings strategy, which will lay out how households are expected to replace their gas boilers with low-carbon heating, amid concerns over the costs.
Josh Buckland, a former adviser to energy secretary Greg Clark, said Ofgem’s price cap rise “makes it harder to justify new levies on bills to fund net zero”.
“Even though this latest price rise is driven by fossil fuel prices, any rising cost puts a more stringent focus on affordability,” he told the Telegraph.
Emma Pinchbeck, the chief executive of the industry body Energy UK, said the price cap rise showed that “continuing the transition to our own clean sources of power and further reducing our dependency on fossil fuels for our heat and power will not only help us meet our climate change targets, but remove the risk of customers being exposed to volatile price rises like this one”.
Jonathan Brearley, the chief executive of Ofgem, said: “We can’t predict when prices will come down but what we can say is when those inputs come down, prices will come down just as quickly as they go up.”