Ofgem and the family bill
Jan 23, 2013
Bishop Hill in Energy: costs, Energy: grid

Bob Ward is trumpeting the latest propaganda sheet from Ofgem, which details the costs of environmental legislation on energy prices. The impact, he claims, is only around 10% of the average household bill.

Here's Ofgem's leaflet, and here are the relevant paragraphs:

Energy Company Obligation (ECO): A new domestic energy efficiency programme designed to create a legal obligation on certain energy suppliers to improve the energy efficiency of domestic households. ECO is estimated to cost a typical consumer £27 per fuel each year.

The Renewables Obligation: A Government support mechanism for promoting large scale renewable electricity projects in the UK. Ofgem’s estimate is that the cost of this scheme this year is £21 out of your electricity bill (there is no impact on your gas bill for this programme). The cost of this scheme is expected to increase in April 2013.

Feed-in-Tariffs: Supports the switch from oil and gas fired heating systems to sustainable sources such as bio fuels, solar thermal panels, heat pumps and renewable combined heat and power. Ofgem estimates the cost of this programme is £6 out of your electricity bill (there is no impact on your gas bill for this programme).

Given the source for this information (and the intermediary!) we should obviously treat these numbers with a degree of caution. Having dug I little I think I can see how Ofgem works its magic. The trick lies in their presenting the impact of legislation on households. In the past, they have given some explanation of how they do this (see here).

What they seem to do is to take the total cost of the legislation, and to split it between domestic and non-domestic energy users on the basis of total electricity demand. Then they take domestic users' share of the total cost and divide it amongst the number of households. What this ignores, of course, is that energy price rises to non-domestic users get passed straight on to the domestic ones (except insofar as the energy is used by exporters). So while the costs of the legislation don't appear in your electricity bill, they will turn up in every other bill you have to pay.

Knowing this, one can try to estimate what the true cost to households might be. According to the document linked a couple of paragraphs above, non-domestic users represent about 62% of demand (the figures are for Scotland, but let's not quibble). So a 10% increase in fuel bills is driven by only 38% of the green cost. Let's guess that 50% of the 62% is passed on from non-domestic users to domestic ones (the remainder being passed overseas).  That would mean something like the equivalent of 10 x 88/38 = 23 percent of energy bills having to be borne by consumers.

Thanks greens.

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