The big six energy companies have been accused of misleading the public by blaming green charges for rising gas and electricity bills. But in fact it’s the increasing cost of fossil fuels - particularly gas - that is mainly responsible for recent price rises, say critics.
They point to a UK government analysis showing that charges for insulating homes and supporting renewables make up only nine per cent of the average household energy bill. The cost of buying electricity and gas on the wholesale market accounts for nearly half the bill.
The major energy companies highlighted green charges as one of the reasons for introducing price increases averaging eight per cent over the last few weeks. This prompted the Prime Minister, David Cameron, to promise a “roll back” of green charges, and speculation that the Chancellor, George Osborne, will cut them back in his autumn financial statement on 5 December.
But an authoritative analysis by the Westminster Department of Energy and Climate Change (DECC) shows that only £112 of the annual average household energy bill of £1,267 is due to so-called green charges. These include £47 to help low-income households insulate their homes, £30 to support wind and other renewable energy sources and £11 for warm home discounts for pensioners.
By far the biggest portion of the bill – £597 – comes from the cost of buying wholesale energy to distribute to customers. Then there’s £257 to pay for the distribution networks, £240 to cover supply costs and profits and £60 for value added tax (see table below).
DECC also argues that the green charges help keep energy prices down. Today’s bills are £64 lower than they would have been without green measures, it says, and bills in 2020 will be £166 lower.
“Most of the big six just couldn't wait to slag off the money that goes to insulating people's homes and making our electricity supply secure for the future by turning it green,” said Dr Richard Dixon, director of Friends of the Earth Scotland.
“In reality this is a small part of people's bills and the bit that is actually going help keep bills down in the years ahead. It is rising fossil fuel prices, the massive subsidy for new nuclear power and the big companies' profits we should be scrutinising.”
Norman Kerr, director of the fuel poverty campaign group, Energy Action Scotland, accused the big six of giving people a “narrow view” instead of the full picture. “It is unhelpful to the debate that the energy companies are placing so much value on a relatively small part of the bill,” he said.
"While they talk about removing the environmental levies from bills to reduce the costs to consumers what everyone forgets is that there will then no longer be any source of help for fuel poor and vulnerable consumers to reduce their energy demand.”
Kerr warned that the short term saving of cutting green charges could cause the “pain of rising bills” in years to come. “The government must not bow down to the enormous pressure being placed on them by the energy suppliers without having an alternative means of providing support to all vulnerable customers,” he told the Sunday Herald.
“What we really need to reduce consumers’ bills is a radical overhaul of the wholesale market which accounts for over 45 per cent of bills - not tinkering around the edges.”
Energy companies, however, defended their position. “We prominently set out all of the individual cost pressures that led to us make the difficult decision to increase our prices,” said a spokesman for Scottish Power.
“Primarily this was driven by rises in forward wholesale energy costs, increased energy delivery charges and increased costs to support compulsory social and environmental schemes.”
According to the company, the main contributory factors to its £98 increase in annual bills were the cost of energy (£34), transportation (£26) and environmental and social charges (£20).
Scottish and Southern Energy (SSE) stressed that it had been very clear in its announcements. “While government social and environmental scheme costs have risen by 13 per cent, they only account for around 10 per cent of a typical bill and there are other upward cost pressures underpinning the price increase,” said an SSE spokesman.
“The cost of buying wholesale energy and transporting it have also gone up and all three factors together have contributed to the £115 million loss we have just reported in our energy supply business.”
SSE supported the aims of green charges. “The question we have raised is whether they are being paid for in the fairest possible way,” the spokesman added. “Moving them out of energy bills and into general taxation would be much more progressive as more of the costs would be shouldered by those who can better afford to pay.”
While this has its attractions, critics point out that it would also have the major drawback of making green charges vulnerable to a tax-cutting chancellor. They also hark back to the rising costs of exploiting fossil fuels.
“There has been a lot of confusion and mixed messages about the drivers of rising energy bills,” said Lang Banks, the director of WWF Scotland. “The rising wholesale cost of gas - up 240 per cent over a decade according to Ofgem - is by far the biggest driver of increased bills.”
Average UK household energy bill in 2013
costs / total energy bill (proportion)
wholesale energy / £597 (47%)
network / £257 (20%)
supply and profit / £240 (19%)
energy and climate change polices / £112 (9%)
value added tax / £60 (5%)
total / £1,267 (100%)