Green taxes on UK electricity bills will increase by more than a fifth

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Environmental taxes added to UK electricity bills will rise by 23% by the end of the decade, according to official forecasts, highlighting the upfront costs of switching to renewable energy and rekindling debate. about payment method.

These core taxes are expected to rise from £12 billion in 2024-25 to £14.8 billion, according to figures published this week by the Office for Budget Responsibility. billion pounds in 2029-30. Budget.

The increase is driven by escalating costs in so-called capacity markets, in which power plants, which often run on gas, are paid to be available when needed.

This back-up market is becoming more important due to the transition to intermittent renewable electricity, with the OBR forecasting it will cost £4.1 billion by 2029-30, up from £1.3 billion in 2024-25.

The expected increase in the cost of electricity bills comes as the government is trying to encourage people to replace gas boilers and petrol cars with electric heat pumps and electric vehicles.

Campaigners have long called for the government to shift taxes from electricity bills to gas bills or fund them through general taxation.

However, both options are fraught with challenges due to the risk of pushing up heating costs for those using gas boilers – now the vast majority of households – or eroding their balance sheets. Treasury.

Adam Berman, director of policy and advocacy at trade group Energy UK, said the current system of funding old renewable energy subsidy schemes through the bills was “regressive”.

However, he said it would be “fair” to include the cost of current core renewable energy programs in electricity bills because of their role in “meeting the country’s future ambitions.” about cleaner, cheaper domestic electricity sources.”

“Such funding will benefit customers and businesses through cheaper renewable energy, providing more stable prices and strengthening the country’s position. energy security,” he added.

Greg Jackson, founder of Octopus Energy, said: “The OBR’s predictions about the rising cost of electricity tariffs are shocking. To modernize and grow our economy, we need people to switch to electric heating and cars, but increasing electricity taxes will make this harder for everyone. The government can help by shifting costs to dirty fuels and introducing regional tariffs, so that renewables cut bills rather than increase them.”

The OBR forecast includes a forecast cost increase of 35% in the government’s plan to guarantee electricity prices for renewable energy developers, known as contracts for difference. They expect this to rise from £2.3 billion in 2024-25 to £3.1 billion in 2029-30.

The actual cost of the program will depend on the wholesale price at that time. Developers must reimburse the program if wholesale prices rise above the level guaranteed by the government.

Labor increased funding for the most recent auction of new contracts under the scheme as part of efforts to achieve its target of decarbonising the electricity system by 2030.

The OBR’s forecast does not include taxes paid for the ECO energy savings scheme nor so-called feed-in tariffs to support green energy.

The total figure of £14.8bn in 2029-30 compared with £10.9bn in 2023-24, marks a 35% increase over the period.

This includes £600m a year to pay for electricity bill discounts for vulnerable households, as well as £100m-200m a year from next year to fund emissions greener.

“In a world with volatile fossil fuel markets, we believe that clean energy systems are the cheapest to build and operate,” the Department of Energy Security and Net Zero said. The effect on the 2030 bills depends on the path we take to achieve the policies we will set out in due course.”