‘Green taxes’ to pay for renewable energy to add £110 to annual household bills in 2020

MPs on the Public Accounts Committee in the Westminster parliament have urged the Government to do more to demonstrate the ‘value for money’ of consumer-funded energy schemes.

The recommendation comes in a report examining the Levy Control Framework, which is intended to help control the costs of three government schemes to support low-carbon generation.

The Framework sets yearly caps on the forecast costs of the Renewables Obligation, Feed in Tariffs, and Contracts for Difference – schemes funded through levies on energy companies and ultimately paid for by consumers via energy bills.

The Committee concludes the levy control framework – famously dubbed ‘green crap’ by former prime minister David Cameron – has “suffered from a lack of transparency, rigour and accountability” and forecasting of its costs has been poor.

The government department responsible (formerly the Department of Energy & Climate Change, now the Department for Business, Energy & Industrial Strategy) continues to expect to overspend the Framework budget.

The report states that as a result, these costs are likely to add around £110 to the typical household’s yearly energy bill in 2020, £17 more than budgeted for.

MPs are concerned there is a “culture of optimism bias” in the Department, having also highlighted “wildly optimistic” forecasts of demand for Green Deal loans in its Report from July last year, Household energy efficiency measures.

Instead, MPs urge the Energy Department to develop ‘a culture of openness and transparency” around its consumer-funded energy  policies to demonstrate the schemes provide value-for-money.

Labour MP Meg Hillier, Chairman of the PAC, said: “British energy consumers deserve to know whether or not the energy schemes they fund represent good value.

“The Government has failed to meet its commitment to report annually on the impact these policies are having on bills. Current arrangements just aren’t good enough.

At the same time, the Government expects the cost of levies to continue to bust the budget – meaning customers will pay more than expected.”

These challenges arise because demand for electricity is expected to increase over the next two decades while many of the UK’s existing coal and nuclear power stations will shut.

At the same time, government wants a growing proportion of electricity to come from low-carbon sources like wind, solar energy and nuclear power to meet its climate change targets.

Most government policies to promote and manage this transition involve placing obligations on energy suppliers with the resultant costs being funded by consumers through their energy bills.

To help control these costs, in 2011 HM Treasury and the Department (formerly the Department of Energy & Climate Change, now the Department for Business, Energy & Industrial Strategy) created the Levy Control Framework.

The Levy Framework requires the Energy Department to reduce costs if forecasts exceed the cap. The cap is £4.9 billion for 2016–17 rising to £7.6 billion for 2020–21. In 2016  green Levy costs constituted £64 of the typical household’s yearly energy bill.

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