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The cost of public policy

The government released a report yesterday explaining the impact of public policy on domestic energy bills. It's a bit of a mystery in places. Look at the alleged savings that energy policy is currently making for us:

Blue: wholesale, red, network; green, other supplier costsI'm struggling with the idea that wholesale prices (in dark blue) are lower than they would otherwise have been because energy companies are forced to buy renewable energy. Similarly, how can network costs (green) and other supplier costs (red) be lower than they would have been?

I smell a rat.

There is precious little by way of explanation, but if you delve into the appendices you can find a table (table D1, page 72) that breaks down the alleged savings.

The main public policy measures from which the consumer is said to have benefited are:

  • Historic energy efficiency regulations £67
  • Building regulations £61
  • Products policy £41

It is noticeable that these are not the ones we usually hear about, and not the ones that are generally debated. Indeed, much of the benefit is from measures taken in the dim and distant past. Meanwhile, the more recent and more high-profile public policy measures are generating much smaller benefits for the man in the street:

  • Green Deal £6
  • Smart meters £1

On the other hand, current policy measures are generating a lot of cost:

  • ECO £36
  • Renewables Obligation £36
  • ETS and carbon price floor £23

I think this confirms the general impression of BH readers that current public policy measures are a shambles.

One last point. The thing I'd really like to understand is the maths behind DECC's claim that consumer bills would have been £1459 without public policy. At the moment I can't see an explanation in the report, so that question will have to remain unanswered for the moment.

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Reader Comments (39)

Presumably, they have factored in the "Social cost of carbon" or whatever they are calling it this week.

There is no other way that these numbers could stack up.

Nov 7, 2014 at 11:42 AM | Registered Commenterjohanna

If it looks like a rat & smells like a rat .............. don't be surprised if it is a rat.

Nov 7, 2014 at 11:43 AM | Unregistered CommenterJoe Public

"Similarly, how can [wholesale prices (in dark blue) and] network costs (green) ..... be lower than they would have been?"

They can't; commodity & network costs have had to be increased simply for the intermittent-generation isolated-by-definition windmill connections.

Nov 7, 2014 at 11:49 AM | Unregistered CommenterJoe Public

Cost benefits from smart meters and green deal???? I struggle seeing any benefits. We the consumer pay through our bills for both of these. Given the cost of smart meters and the uslessness of them, what benefit?

What about the unpublished costs? What about the cost of backup power generation when the wind isn't blowing? What about the cost to the National Grid in order to cater for highly variable/intermittent power generation?

Nov 7, 2014 at 11:51 AM | Unregistered CommenterCharmingQuark

I think it's more than a rat you smell. It's the smell of the decay of any pretense of truthfulness that DECC may ever have had. DECC is just a rotting propaganda arm of the green blob.

Nov 7, 2014 at 12:11 PM | Registered CommenterPhillip Bratby

Is the quantity consumed the same? Energy efficiency savings would imply it is not. However, the major driver in reduced consumption would appear to be cost.

Nov 7, 2014 at 12:22 PM | Unregistered CommenterKevin Marshall

Sums were never their strong subject, pity really.

Nov 7, 2014 at 12:22 PM | Unregistered CommenterDerek Buxton

Green Deal...when I looked at it a while back it was money funnelled through a type of agent (authorised). The costs of anything supplied were hidden...well, I could not find anything without filling a web form in (whatever). Nah!

That simply says to me I don't want the junk at the highest price. I'll do it usual.

Smart Meter...BS, unless...they screw around with selective power off's and that gets close to war.

Carbon Price etc. Liars and Thieves....gets closer to asset seizure.

Prices go up and up and commodity swings around. Oh, we paid in advance so no deals at all. Just pay!

VAT on energy and related is criminal.

Building Regs (incl Elect/Gas) and Standards are about safety mainly. All standards and process related must be free. The Elect Regs (Part P) are seemingly written by the fools I used to see writing BS, International and Military Standards. The types that don't specify accurately, are written poorly and leave the user to translate largely.

Nov 7, 2014 at 12:25 PM | Unregistered CommenterEx-expat Colin

There are lies, damn lies and statistics. Then there is the DECC which is on another plane altogether. I hazard a guess this is the smell of not one but a number of rats who are doing rather nicely thank you out of this scam. But I am still puzzled why we would need a government department for changing climate, with all the expense that entails running into countless billions, when all the bid mashers and solar panels in the world are not going to change the climate of the planet over this century by so much as a gnat's whisker.

Nov 7, 2014 at 12:29 PM | Unregistered CommenterMartin Reed

Have the figures been independently audited? If not then they are not worth the paper upon which they are written. They are clearly purely political.

Nov 7, 2014 at 12:32 PM | Unregistered CommenterPeter Stroud

They add Loft insulation to a few houses and then claim it benefits everybody with lower bills.
Only in the land of politics controlled MSM could they get away with it.

Nov 7, 2014 at 12:36 PM | Unregistered CommenterA C Osborn

"DECC is just a rotting propaganda arm of the green blob."

Nov 7, 2014 at 12:11 PM | Registered CommenterPhillip Bratby

I think "proboscis" is a better choice of word than "arm", Phillip.

At the moment, by common definitions, I cannot think of any creature that feeds through its arm.

Nov 7, 2014 at 12:49 PM | Unregistered Commentermichael hart

One of the tricks employed is the use of hedonic economics. That is, because you are priced out and run your thermostat at a low temperature, your bill is lower than it would be otherwise. Note the implied reduction in consumption from the lower commodity cost. Moreover, in mickey mouse land, the [real] cost of energy saving measures is often excluded, so any reduction in usage is credited without offset as a benefit. e.g. from the 2013 report:

Building regulations do not directly affect energy prices but minimum efficiency standards for boilers may mean rising costs of replacement which are not reflected in the energy bill. These costs have not been included
(page 65)

So a £5,000 boiler installation is cost free.

Nov 7, 2014 at 12:54 PM | Unregistered CommenterIt doesn't add up...

The answer is simple

The average net impact of policies between 2010 and 2013 has been to reduce bills.
The cost of supporting home-grown, low-carbon sources of energy is estimated to account for around 5% of household energy bills in 2014, and is estimated to have accounted for around 5% of the increase in household energy bills between 2010 and 2013. The cost of supporting investment in energy efficiency and providing help to vulnerable households net of the Government Electricity Rebate is estimated to account for 2-3%of bills in 2014, and have remained broadly flat over this time, contributing to none of the increase in bills between 2010 and 2013
However, these policy costs are estimated to have been more than offset by lower consumption as a result of policies

While household energy prices have risen over the last decade, average energy consumption per household has fallen.
This has helped offset the impact of some of the price rises and reduce the potential rise in energy bills.

The fall in household energy consumption over recent years has likely been driven by a number of factors, including improvements in household energy efficiency, a demand response to rising real energy prices over time falling real incomes during the recession. Improvement in household energy efficiency includes the impact of policy driven improvements to the building fabric, more efficient household appliances, and energy efficient behavioural change.

The cost of electricity rises, our real time income falls amidst the recession so we consume less making the bills cheaper. Now we have the same capacity of paying the bills as we did before.... so where is the benefit?

Nov 7, 2014 at 1:13 PM | Registered CommenterLord Beaverbrook

The repair of a "Green" Boiler type was reckoned to be about £250 per 2 years (thanks to Prescott). Its certainly about £230 per year if you subscribe to the monthly insurance game, which includes servicing....checking?

The £250 bit is about parts only I think, which runs along with washing machine parts..just too expensive for what they are.

Add in the switch cost to Contractors - Corgi to Gas Safe and calibration of test equipment/training.

Add in the courses at £3k a throw for qualifications like CGLI (initial and updates)

Add in the handbooks/standards at about £80 a throw.

Somebody had an Ari*ton Boiler fitted near here just over a year ago. Now tripping the house RCD !! A man in a bobbly hat turned up to fix it a few days back and was not seen again. So thats a failure in adherence to Elect Part P Regs and the Unit itself. To repair this unit would require those knowlegable/experienced in both the CH System/Boiler, its electrics and electronics. The latter won't be available, so the guessing begins, rather like a washing machine. Add callout cost, hours and parts all with VAT.

Rather than serial expensive guessing the family have opted for a new Wor*ester replacement. And it can all so easily repeat.

Serial p*ss take !!

Nov 7, 2014 at 1:20 PM | Unregistered CommenterEx-expat Colin

They are - seriously - making it up as they go along...

Nov 7, 2014 at 1:26 PM | Unregistered Commentersherlock1

DECC must be using the Tesco accounting system on the new Met Office £100million super duper computer.

Nov 7, 2014 at 1:32 PM | Unregistered CommenterMartyn

I can't believe how dodgy this is. So, if you replace your boiler (at zero carbon cost!) with a new one, we start the page all over again?

In commerce, people get put in jail for this sort of "accounting."

Nov 7, 2014 at 1:52 PM | Registered Commenterjohanna

Remember their figures of £141 pa by 2020 per household, are only domestic users share, which based on consumption is 35%.

As industry, transport and the public sector will all have to pay extra as well, the total bill proratas up to £10.6bn pa by 2020.
Such extra costs will have to be paid for by all of us via higher prices, taxes, service cuts and lost jobs - and that equates to £400/household.

One other thing - they quote green levies as costing 11% of bills by 2020, but virtually all of this falls on electricity (as opposed to gas, which accounts for perhaps half of most bills). In other words, electric prices could rise by 20%.
For households who have no access to gas, or have invested in electric heating, this would be crippling.

Remember too that the Climate Budgets plan for a massive electrification of domestic heating and transport. As more and more of us switch to heat pumps etc, the more we will pay as electricity prices soar.

More analysis here.

Nov 7, 2014 at 2:02 PM | Unregistered CommenterPaul Homewood

DECC have just taken a leaf out of the climate scientists' handbook and are making this up as they go along. I am still astonished that average annual energy bills are only £1400. My electricity alone is £1200, no gas, but go though about 600 litres of kerosene a year (we don't put the CH on much, it was over £700 for 1100 litres last time) and also spend at least £1000 on logs and peat for the big stove each year. Before you ask, the kids do not have electric heaters in their rooms, nor do we have a big house. The attic is well insulated, all windows are double glazed, and I also spent about £3000 ripping up the old floors and putting 100mm Celotex down underneath. The fact is that I live in a cold part of a cold country, and energy costs are way too high, mainly because of this and the previous government's misguided energy and deluded climate polices. /rant.

Nov 7, 2014 at 2:04 PM | Registered Commenterlapogus

We are expected to be using 14% less gas and 29% less electricity per household by 2020 than we do now!!!

A third less electricity than we do now, how the hell is that going to be achieved?
Smart meters still haven't been rolled out yet and how about smart appliances, are they for sale yet?
How often does the general householder replace a major appliance?
What calculation is being made to determine a reduction in usage of a third from what I use now. I would state that I am on bare minimum usage now, it's not like I'm enthusiastically turning things on in the house when they are not required!!!

Nov 7, 2014 at 2:09 PM | Registered CommenterLord Beaverbrook

When US EPA put out their new regulations for coal plants, they said there would be no cost from the regulations because the regs would be so hard to meet that no one would ever build a new coal plant. No cost! And I am not making this up.

Nov 7, 2014 at 2:25 PM | Unregistered CommenterCraig Loehle

It's post-modern economics, Craig.

You never spent the money (because you didn't have it), so it was saved.

Like how all the money that medieaval farmworkers saved on energy costs, and Gaia be thanked!

It would be funny if it wasn't so serious.

Nov 7, 2014 at 2:40 PM | Registered Commenterjohanna

I read the following: Government estimates that roll out of smart meters to customers’ homes will cost around £12.1 billion overall. £12.1 billion (plus whatever growth, inflation and slippage) will supposedly save £18.8 billion (joke). This is needed because the green idiocy plan for for the energy industry has been a wholly predictable flop and cannot ever hope to supply power reliably. There is not a hope in hell that smart meters will save even a fraction of the figure they have dreamed up and their adoption will require consumers to purchase smart meter enabled appliances at the cost of tens of billions on top. Not another country in the industrialised world has failed to order and build real power stations that actually work, which is at the root of this nonsense. Even Germany is building coal fired capacity like crazy. When is the UK DECC going to be wound up and its activists prosecuted for malfeasance in public office?

Nov 7, 2014 at 2:44 PM | Unregistered CommenterMartin Reed

No change in the small print which is 'we're going to make energy so freaking expensive you'll use less and thus spend no more money... except the upfront costs on new boilers, insulation, etc, etc, which we don't count because we think you're too dumb to guess what we're up to.'

Nov 7, 2014 at 2:54 PM | Unregistered CommenterTinyCO2

Alan Johnson still banging on about the Siemans investing in the Wind-turbine plant in the city of Hull.

In a depressed Northern England region with high unemployment wouldn't the people of Hull would rather have had Deawoo building factories making cars or Sony making Play Stations or Apple making Ipads or perhaps Siemans making a plant making turbines driven by cheap available Natural Gas not unreliable subsidized expensive wind power.

Nov 7, 2014 at 3:16 PM | Unregistered Commenterjamspid

Smart meters are an accident waiting to happen. Think of all the massive government IT programmes that have failed over the years. Smart meters are a similar programme that, additionally, involves expensive and complex hardware in millions of homes - all reporting at half-hourly intervals over the internet. What could possibly go wrong?

Nov 7, 2014 at 5:36 PM | Unregistered CommenterBilly Liar

Craig Loehle, you are spot on. The point is made with referenced citations in the essay Clean Coal in new ebook Blowing Smoke. A version was posted over at Judith Curry's some months ago.

Nov 7, 2014 at 5:50 PM | Unregistered CommenterRud Istvan

It's quite simple. Because the cost is up, people will now buy less, causing substantial savings.
Long term, it has the effect that people will move into apartments from houses, saving even more money!

It is like how ObamaCare has made health insurance so expensive that people stop buying health insurance, saving as much as a thousand dollars a month.

Nov 7, 2014 at 5:58 PM | Unregistered CommenterMikeN

This looks very much like the "creative accounting" that the other energy firm, ENRON, made into an art form.

Nov 7, 2014 at 6:44 PM | Unregistered CommenterDon Keiller

Lord Beaverbrook
I suspect we'll have 29% less electricity generated by then so our usage will HAVE to drop 29%.

Nov 7, 2014 at 8:10 PM | Unregistered CommenterPeter Dunford

64. Policies are estimated to currently be adding around 17% to the average electricity price paid by UK households. In addition to the cost of the ECO and Warm Home Discount, this also reflects the cost of the RO and small-scale Feed-in-Tariffs (FITs) obligation on retail prices and the carbon cost of the EU ETS and CPF on wholesale electricity costs. Going forward, this impact is estimated to increase to 33% in 2020 and 41% in 2030, reflecting the rising trajectory of the CPF and EMR (and to a lesser extent RO) support costs as more low-carbon generation technologies are expected to be deployed.

I pity you UK'ers.

Nov 7, 2014 at 8:24 PM | Unregistered CommenterTimo Soren

Missing is a comfort index. If costs and comfort are down then there has been no real gain to the consumer. If it has been the goal of the government to achieve reduced energy via reduced comfort they've clearly succeeded. Now put them out of office at the earliest opportunity and take back your comfort.

Nov 7, 2014 at 8:49 PM | Unregistered Commenterdp

Apart from DECC getting things back to front, they have missed the very obvious fact that Smart meters can give free electricity when hacked.

Nov 7, 2014 at 9:30 PM | Unregistered Commenterivan

having checked to source numbers on energy consumption from the DECC, it seems the biggest driver of reduced energy consumption is lights. What is interesting is that most of the drop in demand for electricity allocated to lighting happened between 2007 and 2009 which predates the lightbulb ban. One might suspect this is more likely attributable to the financial crisis than government policy since the big drop corresponds well with the financial crisis and poorly with government policy.

Nov 8, 2014 at 7:44 AM | Unregistered Commentermax

the energy has in fact no cost, energy makes wealth... trying to save energy is sometimes stupid...

you have to see gdp , incomes...and life standards ...

Nov 8, 2014 at 9:11 AM | Unregistered Commenterlemiere

"I smell a rat"

No Bish the stench is much stronger and more putrid than that!!

Nov 8, 2014 at 9:38 AM | Registered Commenterretireddave

It wasn't Tesco accountants who prepared these graphs, was it..?

Nov 8, 2014 at 1:31 PM | Unregistered Commentersherlock1

Nov 7, 2014 at 8:10 PM | Peter Dunford

Some detail from Carbonbrief as to why energy use has dropped, it seems nobody knows for sure.

The drop in demand is causing some high-level head-scratching. There are plenty of ideas about what the reasons might be, but much less clarity about which is most important.

"The short answer is that no-one knows," says Guy Newey, head of energy and environment for centre-right thinktank Policy Exchange. He looked into the question last year but did not find good data.

The head of energy regulator Ofgem Dermot Nolan says "energy usage is falling but it's not well understood how or why." Energy efficiency improvements are part of the reason, he suggests.

The Committee on Climate Change tells Carbon Brief:

"We know that falling demand is combination of economic weakness, energy efficiency policy, higher energy prices and, possibly, non-price behaviour change - but questions remain around the relative contributions of those."

I now know how I am to save a further 30%, I have to buy a new home...

DECC points out that new homes built today will use 30 per cent less energy than new homes built in 2010. That's down to rules requiring ever-increasing levels of home insulation and more efficient heating systems.

There are some assumptions taken for the DECC figures which are starting to change.

Such estimates rely on two predictions: how much energy demand there will be, and what the cost of fuel is likely to be. If the government's projections for either are these are wrong, it can have a big impact on its estimates of how much households will pay for energy.

DECC expects there to be a long term trend of UK households using less energy. It assumes household electricity demand will continue to fall - about 20 per cent by 2030, compared to 2005 levels, with gas demand falling by about 25 per cent. Without government policies, demand is still expected to fall, but not by as much: electricity by about eight per cent, and gas by about 17 per cent.

At the same time, DECC assumes the cost of gas and coal, the main fossil fuel used to generate electricity, will rise significantly. But such prices aren't stable.

That's why DECC updates its price estimates each year. DECC's most recent estimates project gas being about 20 per cent cheaper in 2020 than it's previous projection. It also expects gas to be slightly cheaper in 2030 than it previously thought.

The wholesale cost of energy is the main part of a household's bill. So if DECC is wrong about how much energy will be used in the future, or how much fossil fuels will cost, its household bill estimates could be way off.

Nov 10, 2014 at 4:13 PM | Registered CommenterLord Beaverbrook

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