Green fees make up 8 percent of domestic electricity bills, with the bulk of this spending going to subsidize wind farms. Photo: Owen Humphreys/PA
Grant Shapps, energy secretary, has pledged to provide Britain with the «cheapest energy in Europe», intending to overhaul the energy system as part of a drive to become greener.
For poor households and businesses across Britain , the promise was no doubt a long-awaited one. But it was also a tacit admission that they had long been saddled with some of the highest bills in Europe.
Industrialists, including Sir Jim Ratcliffe, lamented the enormous costs faced by energy-intensive businesses, while households fared better in many countries on the continent.
Data show that this had a huge impact on UK economy. According to official statistics, inflation in February was 10.4%, including energy prices, but without them, much less than 7.6%.
Eurozone inflation, including electricity bills, was 8.5%. But without them, it would actually be higher than in Britain, at 7.8%.
The toxic combination of zero fees and subsidies means that, unfortunately, Shapps has some quick fixes if he wants to get the job done. target.
0704 energy crisis uk eu «Green fees»
Electricity bills paid by households and businesses are divided into two parts: gas, which heats boilers, and electricity, which maintains light. These are very different markets.
The price of each to the end consumer is made up of the wholesale price of the product plus surcharges and taxes.
In the years before the energy crisis, wholesale electricity prices in the UK were higher than in most of Europe by a large margin. degree due to the shift away from coal in favor of less polluting but more expensive energy sources.
The UK introduced additional carbon taxes in 2013 — the fees a polluter pays for every tonne of carbon dioxide they emit — to move electricity generation away from coal. Meanwhile, in the European Union, the price of carbon has come down.
This meant that electricity producers in the UK initially paid a minimum of £16 per tonne of carbon dioxide, encouraging them to replace coal-fired plants with low-carbon natural gas, biomass or switch to wind energy production.
0604 «green» raises costs.
In the EU, carbon costs dropped to €2.75 (£2.41) at one point.
Higher fees in the UK have been successful in terms of reducing carbon emissions. In 2021, the UK generated about 2% of its electricity from coal, compared to about 30% in Germany.
However, additional carbon taxes have pushed up wholesale electricity prices as generators have been forced to charge higher fees to cover your expenses. .
For example, in 2021, the average wholesale electricity prices in the UK were £113/MWh compared to €96/MWh in Germany.
«In Europe, UK wholesale prices were higher mainly due to more high price of carbon,” says Tom Smout, Senior Scientist at Aurora Energy Research.
By the time electricity reaches the consumer, additional charges are added to the wholesale price.
UK annual average .invoices
These fees represent about 8 per cent of today's domestic electricity bills in the UK, according to an analysis by the Energy and Climate Intelligence Unit, equivalent to £131 per household.
The bulk of these costs were spent on subsidizing wind farms. power plants. . There are also levies to insulate homes and help vulnerable households meet their energy bills.
The UK is resisting calls to abolish green fees despite a jump in overall bills.
By contrast, last year Germany abolished a controversial tax on renewables, which is expected to save the typical household €200 a year, and the subsidies will be funded by public money.
Gas dependency
Meanwhile, the UK dependent on gas has also grown significantly over the past 50 years.
The discovery of oil and gas in the North Sea in the 1970s helped satisfy an ongoing dependency, as the vast majority of homes are heated by gas-fired boilers. and many industrial processes that depend on it.
Gas also produces over a third of the UK's electricity annually and sets the price of electricity on the market. Overall, gas accounts for just over 39% of the UK's energy mix.
This meant that the UK was hit hard when gas prices started skyrocketing in October 2021.
Gas prices in the UK are usually similar to those in the EU. However, Britain's heavy reliance on gas means it is feeling a sharper rise in prices. In comparison, for example, more than 40% of French homes use electric central heating, where prices fluctuate much less. About a quarter of houses in Germany use oil instead of gas.
0409 UK natural gas
Pierre-Olivier Gourinsha, chief economist at the International Monetary Fund, in January cited the UK's heavy dependence on gas as one of the reasons why it was hit particularly hard by the energy crisis.
natural gas, energy prices in the UK,» he said.
«And a larger share of energy comes from natural gas with higher transmission to end consumers. So it affected – if you will, the UK had a bigger cost-of-living crisis.”
Therefore, in the long term, electricity carbon prices and the UK's heavy reliance on gas have increased the pressure on UK electricity bills relative to international peers.
Subsidies
During the energy crisis of 2022, the dynamics of wholesale prices changed.
The cessation of gas supplies from Russia caused a sharp jump in prices in Eastern Europe. The decline in production at French nuclear power plants exacerbated the problems.
Europe frequently imported gas from the US via the UK, as well as electricity from the UK, which pushed prices up in Europe relative to the UK. and this means that for much of the crisis, the traditional position that UK wholesale prices were higher has been reversed.
Average UK wholesale prices were £200/MWh in 2022, slightly lower than 235 euros per MWh. in Germany, according to Mr. Smout.
The amount that households have paid over the past year is also highly skewed by the level of government subsidies. In Europe, they vary considerably.
1603 Energy price caps save households hundreds of pounds.
For example, in the UK, households currently pay 33.2p per kilowatt-hour for electricity, much lower than the 51p set by the energy companies. are charging. The government subsidizes the difference, bringing the average check down from £3,280 to £2,500.
While this is generous — valued at £69 billion for households and businesses, extremely expensive for taxpayers — other European governments have offered even bigger gifts.
Ranked by percentage of GDP devoted to energy, it is 3.8 %, with Italy ahead at 5.2%.
In France, President Emmanuel Macron ordered his state nuclear giant EDF to sell electricity at a lower price to overcome the energy crisis. failed.
More costs to come
There are still costs to move to a net zero economy by 2050, estimated by the Office of Accountability two years ago at £1.4 trillion, a figure he says , will be partly offset by £1.1 trillion in theoretical savings through measures such as better lockdowns.
It is not clear how these huge costs will be covered – whether it be bill fees, additional taxes or some a combination of both.
But as Mr Schapps aims to develop «the cheapest energy in Europe», the way forward is difficult.
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