What do the government’s green subsidies mean for your energy bill?
Everyone — from energy companies to Prime Minister David Cameron — are blaming green subsidies as the reason behind recent energy bill price hikes. We take a closer look at these costs.
We tackle what green subsidies are, exactly, why they were put in place and how much extra you have to pay on your energy bill because of them.
What are green subsidies?
Green subsidies, also commonly referred to as green levies, green taxes or carbon taxes, are the government’s way of making Britain a low-carbon economy.
As the majority of us get our energy through energy companies, the government is paying for a raft of green measures through a levy on domestic energy bills.
The levies support home upgrades, expanding low-carbon forms of power generation and offer support to those suffering from fuel poverty. The key components are:
- The Renewables Obligation (RO) The RO is a requirement for the UK’s energy suppliers to source a percentage of their energy from renewable energy. To pay for new renewable generation the costs are added onto household bills.
- Feed-in Tariffs If you produce your own electricity through solar panels or wind turbines, your energy company may pay you money to do so, or pay you more money if you feed the energy back into the National Grid.
- Energy Company Obligation (ECO) If you come from a low-income household your energy company will offer you support to install expensive insulation upgrades.
- Warm Homes Discount Likewise, energy companies will offer help to low-income households to pay for their heating.
- Emissions Trading Scheme and Carbon Price Floor These are taxes on fossil fuel generation and a minimum price for trading carbon, again, designed to encourage energy companies to source their energy from low-carbon sources.
These measures are all entirely unique and far more complicated, so you can read more about them elsewhere, like on our dedicated feed-in tariff guide page.
Why do green taxes exist?
The green subsidies can broadly be divided into two groups: those designed to make us less dependent on fossil fuels and those designed to help low-income households.
The main impetus for making us less dependent on fossil fuels has come from global warming and agreements within the EU and internationally that a ceiling should be set on greenhouse gas emissions.
The government’s current aim is to reduce the UK’s greenhouse gas emissions by 80% below 1990 levels by the year 2050.
Since most of our energy currently comes from fossil fuels, that means changing where we get our energy from.
Measures like ECO and the Warm Homes Discount on the other hand are designed to ensure that the benefits of having a low-carbon home are shared across the population, not just by those who can afford the energy-saving upgrades.
The key thing to keep in mind is that these measures cost your energy supplier money, and this has to be paid for. The way they pay for it is by adding on a percentage of the cost to household bills.
How much do they add to energy bills?
The question of how much they add to household energy bills is a very contentious question, and depends entirely on whom you ask.
When the current levies were set in 2012, following the release of the Energy Bill, the energy regulator Ofgem estimated they would add £107 to the average household bill. At that time, the average energy bill cost a household £1,267, so the green levies added about 8%.
However, the Department for Energy and Climate Change (DECC) puts that figure at £112, or 9%, and that was before the latest round of price hikes hit that year.
During the price rises of the Autumn of 2013, energy supplier SSE claimed that 13% of its £106 price rise was due to government subsidies like green charges, pushing up the percentages slightly.
Until all energy suppliers publish the exact breakdown of their annual bills, we won’t know the exact figures, but at the moment it is safe to say that around 8% to 10% of your energy bill goes towards green subsidies.
What are the benefits of green subsidies?
Crucially, the government claims that without the green subsidies, energy bills in the long run would go up even more, as the cost of wholesale fossil fuels continues to spiral.
What’s more, by paying toward green subsidies we are reducing the carbon footprint of the UK, and helping low-income homes benefit from energy-saving measures, so they don’t get left out in the cold — literally.
Is there any way to exclude yourself from paying green subsidies?
No, not if you get your energy from an energy supplier. There’s no opt-out, so you can think of them as an indirect tax.
The only way to not pay green subsidies is to be energy independent.
How else can you be green without paying energy companies to do it?
The great thing about the green subsidies is, while we all have to contribute towards them, we can all benefit from them too.
If you are a pensioner you may qualify for the Warm Home Discount, entitling you to a rebate on your winter energy bills.
Similarly, if you are in a low-income property you could be eligible for the energy company obligation.
And if you are looking to generate your own energy using solar panels or a wind turbine, you could benefit from the feed-in tariff scheme, and get paid for the energy you generate, even if you use it yourself.