The introduction of energy and climate change policies is having a direct impact on energy bills, and will help to save consumers hundreds of pounds in the coming years, the government has claimed.
According to Energy and Climate Change Secretary Ed Davey, new schemes and measures introduced by the current administration are helping to temper the impact of global gas price rises and escalating network costs on consumers’ household bills.
His comments accompanied a new report from the Department of Energy and Climate Change (DECC), which shows that household dual fuel bills are around 5% lower at the moment than they would be without policies being introduced – the equivalent of £64 a year.
Furthermore, the government expects this subsidy to continue rising in the years ahead, with the average dual fuel bill expected to be around 11% lower in 2020 thanks to green policies – saving consumers around £166 a year.
Offsetting the cost
Energy bills will continue to creep up in the years ahead as wholesale prices rise and demand increases, with the DECC data estimating that the the average dual fuel bill will be £1,496 by 2020. However, energy-saving policies are set to bring this figure down to £1,331, with some families benefiting more than most.
The analysis reveals that households willing to make energy-efficient improvements to their homes in the years ahead will benefit significantly in the long run, with those who install at least one major insulation measure through energy supplier obligations saving up to £270 a year.
The DECC does acknowledge that the cost of implementing green policies is likely to rise in line with increasing low carbon investment, but notes that this will be offset by taking up energy efficiency measures through the Green Deal and other initiatives.
Other key measures will include the rollout of smart meters and the tightening of efficiency standards for household energy appliances, which could save families around £158 per year, while the replacement of 12 million gas condensing boilers with newer, more efficient versions could save consumers up to £120 or more per year.
The report also broke down energy bills to give people a greater idea of exactly what their money is being spent on.
What energy bills really pay for
It revealed that by far the largest proportion of an average household energy bill is spent on wholesale gas and electricity, which comprises around 47% of the charge, while transmission, distribution and metering costs (20%), other supplier costs and margins (19%) and VAT (5%) make up the remainder.
The report conclusions are largely in line with recent findings from the independent Committee on Climate Change, which suggested that the international price of gas continues to drive energy bills upwards.
Cushioning the blow
However, Mr Davey was keen to stress that opportunities to improve energy efficiency can more than offset the rising costs being passed on to households through energy bills.
“Global gas price hikes are squeezing households. They are beyond any government’s control and, by all serious predictions, are likely to continue rising,” he explained.
“We are doing all we can to offset these global energy price rises, and while we have more to do, this new study shows our policies are putting a cushion between global prices and the bills we all pay.”
While turning to renewables and being more savvy with the use of energy can help people to save on their bills, the Energy and Climate Change Secretary also advised those who are eligible to take advantage of the assistance available through initiatives such as the Warm Home Discount and Energy Company Obligation, which forces energy suppliers to boost the energy efficiency of struggling households.
“The analysis underlines the importance of pressing ahead with the range of steps we’re taking to decarbonise and insulate our economy from excessive reliance on imported gas,” Mr Davey added.
The report has been welcomed by climate change lobbyists such as Greenpeace, which said the figures highlight how green policies are having a positive, rather than negative, effect on consumers.
Greenpeace’s policy director Doug Parr told the Guardian: “This report demonstrates that green policies are not causing rocketing household bills and they will not do so in future. With the right investment, UK clean energy will only get cheaper. The same cannot be said of gas.”
However, the report received criticism from some circles, including shadow energy and climate change secretary Caroline Flint, who described the DECC figures as a “shameful and underhand” attempt by the government to mask the real impact of its policies on families’ energy bills.
She added: “Instead of cooking the books to trick people into thinking their energy bills will be lower, ministers should get behind Labour’s plans to overhaul the energy market and deliver fair prices for the public.”
What we think
Ann Robinson, Director of Consumer Policy at uSwitch said: “This report is a snapshot based on what DECC knows today – and this will keep changing and updating over the coming years. However, the underlying message is clear – there will be winners and losers as a result of the government’s energy policies.
“The winners will be those who take action to make their homes as energy efficient as possible to cushion themselves from the impact of policies on their bills.
“As far as consumers are concerned, the writing really is on the wall. While DECC is saying that households will benefit from its policies overall, the fact is that this will only be the case if they adapt their behaviour. This means taking advantage of schemes such as Green Deal, which can help them to ‘future-proof’ their homes.
“This is why it’s also important that Ofgem moves ahead swiftly with its market reforms and ensures that they are hitting the mark, as consumers will need the protection of a strong, competitive market to help keep energy prices under control.
“The fact is that we are all facing an uncertain future and energy affordability will continue to be a huge consumer concern – the priority has to be to help households to grasp the facts, understand the solutions and to adjust their behaviour as quickly as possible.”