ENERGY giants will be handed more than £1.2billion from wind and solar farms as gas prices soar in 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 back to the government. But rather than the money going directly to households, it is passed back to energy suppliers, The Daily Telegraph has learnt.
In the first six months of this year, wind and solar producers are predicted to pay back £1.2billion as gas prices soar, pushing up the wholesale electricity price, a potential saving of around £40 per household.
That figure is set to rise as renewable energy becomes cheaper to produce, and could hit as much as £26billion in 10 years, a saving of up to £330 per household, if gas prices remain high, according to analysis shared with The Telegraph.
Senior Tory figures have called for reform of the green subsidy system, to allow the dividends from cheap renewables to be passed directly to 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,” Conservative MP John Penrose said.
“It would create a built-in price stabiliser for hardpressed households and businesses, giving everyone a concrete example of how net zero can help our finances, and provide a handy dose of economic aspirin for the Chancellor who would have one less headache to deal with in his budget next month.”
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 due to stymied supply in the wake of the pandemic resulted in wholesale electricity prices rising significantly.
Prices of gas, which is used to produce around 40 per cent of the UK’s electricity, have spiked again since the invasion of Ukraine, rising as much as tenfold year on year.
Renewable producers receive a pre-agreed price per megawatt hour (MWh) for their electricity, under the Government’s scheme to encourage the development of wind and solar sources.
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 and yesterday reached £174/MWh. Projects expected to start producing next year are as low as £50MWh.
A 54 per cent rise in the energy price cap in April will see dual bills rise to around £2,000, and is expected to push more than a million households into fuel poverty.
Ofgem 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 £7billion if a similar gas price crunch hit in five years, and up to £26 billion in 10 years, a saving of around £290 to £330 per household, according to analysis by the ECIU.
£26bn Potential dividends from renewables within 10 years, according to analysts