Tag Archives: green levies

Does the Government understand its own Green Levies?

Double exposure graphic of business people working over wind turbine farm and green renewable energy worker interface. Concept of sustainability development by alternative energy.

From NET ZERO WATCH

By Dr John Constable

As reported by the Sunday Telegraph (25.06.23), the government is silently reapplying the cost of green levies to domestic consumer energy bills, reversing the decision taken under the Truss government to fund these costs from general taxation.

While it is our view that these levy costs should be cut entirely, rather than shuffled from one place to another, it is obviously preferable that they should funded from progressive taxation rather than drawn from consumer energy bills, where the effects are sharply regressive, since energy bills are a much larger part of a low-income household’s total expenditure than that of a better off household.

It is difficult to believe that Mr Sunak would knowingly revert to direct levies with regressive impacts on low-income households, and it may be a simple mistake arising from misunderstanding of the character and scale of the climate change policies.

Certainly, the remarks of the Prime Minister’s official spokesman in defence of this decision suggest that the No. 10 advisors do not understand the issues. Mr Sunak’s spokesman has been quoted in the press (Telegraph 27.06.23) as remarking that:

The crucial point is that the levies not only help bring down energy bills over time – they drive investment in renewables – but they also help the public, those hardest hit: so the £150 in the warm homes discount, those on pension credit, those on low income, so that’s providing that.”

Firstly, only the most naïve would now think that investment in renewables will reduce costs. As is well known, at least outside Downing Street, the capital and operating costs of both wind and solar remain stubbornly high, their productivity is very low, and the grid expansion and system management costs of randomly intermittent wind and solar are also very high (Balancing Services now amount to about £4 billion per year, largely due to wind and solar). Renewables are, as anyone familiar with their physics would expect, extremely expensive and certain to remain so.

Secondly, the Prime Minister’s spokesman appears to be confused about the character and scale of the £150 Warm Homes Discount on the electricity bills of low-income households. This is a cross-subsidy funded by levies on the bills of other consumers, but it is not a green levy in the strict sense, and is no longer included amongst the Environmental Levies as listed by the OBR.

In any case, the Warm Homes Discount amounts to only about £475m a year in total and is awarded to only around 2 to 3 million households, a benefit which pales into insignificance besides the scale of green levies proper: the Renewables Obligation, the Contracts for Difference, the Feed-in Tariff, the Capacity Market and the Green Gas levy.

Together, these levies cost consumers approximately £8.5 billion a year, and affect all 26 million households, both through their electricity bills and through general cost of living, as industrial and commercial consumers pass on their share of these costs in the prices of goods and services, a total impact of over £300 per household.

On top of this there is the UK Emissions Trading Scheme, currently adding about £6 billion a year to the costs of doing business in the UK, depressing wages and rates of employment and adding yet another layer of indirect green taxation to the cost of living.

Dr John Constable, NZW’s energy director said: 

The Government’s decision to silently reapply green levy costs to bills is in itself a retrograde step and a mistake, but the misinformation in defence of this decision suggests a negligent lack of engagement with the reality of their own climate policies. Carelessness of this kind is crying out for punishment at the ballot box.”

Andrew Montford: The OBR’s curious predictions

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

The Office for Budget Responsibility (OBR) recently published its predictions about how the cost of environmental levies might change over the next few years. The picture painted was somewhat less appalling than it might have been because, or so the OBR claims, renewables generators are going to be paying back into the Contracts for Difference (CfD) scheme at a steadily increasing rate.


The CfD scheme essentially gives generators a fixed price for power. If market prices are below the agreed “strike price” they get a subsidy for the difference, but if they are above it, they have to pay the difference back into the scheme. In five years’ time they will allegedly be handing back nearly £4 billion per year.

However, the forecast of a steadily increasing repayment involves some remarkable assumptions about the future. Let me explain why.
The pattern of steadily increasing repayments predicted by the OBR must be due either to increasing volume – in other words, an increasing capacity of generation operating in the CfD scheme – or to market prices rising further and further above strike prices.


A moment’s reflection shows that increasing volume cannot be the explanation. A generator will only sign up for the CfD scheme if market prices are low and are expected to remain low. Otherwise, they will not sign up.

This is precisely what we have seen since the start of the energy crisis. With high market prices readily available, almost no new capacity has become operational inside the scheme. That’s because doing so would probably involve handing cash over to consumers, and what business likes to do that?


Could the OBR be thinking that lots of generators will sign up for the scheme as the result of a fall in market prices?

No, because if prices are low then the scheme will be paying out subsidies. A fall in prices followed by a rise? That doesn’t work either, because it doesn’t equate with the OBR’s prediction of steadily increasing repayments.


With market prices high, and expected to go higher, it is therefore extraordinarily unlikely that any further capacity will be added to the scheme. The OBR must therefore be basing their prediction on an expectation of rising market prices for those generators who are already signed up.


But how high would those prices have to go to explain to get to the £3.8 billion figure for 2027/28? If no capacity is added to the fleet in the next six years – as seems likely – then we can assume that it will be generating the same amount of electricity in 2027/28 as it did in 2022.

We can also make a guesstimate that strike prices will increase by about 25% over the same period, roughly the same has they have done over the last five years. If those figures are correct, then the OBR’s figure of a £3.8 billion payback in 2027/28 requires market prices to average over £500/MWh, more than twice what they were during the energy crisis last year.


Of course there is a third explanation for the OBR’s numbers, which is that they are entirely baseless – a work of fiction designed to make the burden of green levies look a little less appalling than it otherwise would. But the Westminster machine would never do something so deceptive…would they?