If you have a renewable electricity tariff, I bet you’ve been wondering why your bills have gone up even though you’re not using any gas or oil? The UK Government is asking the same question with Energy Secretary Kwasi Kwarteng acknowledging that, the role of gas in setting consumer bills is a ‘problem that needs to be addressed’.
It is an obvious question to ask. The war in Ukraine and the economic ‘bounce-back’ from lockdown has created a spike in gas and oil prices that looks set to last, yet the price of generating power from the wind and the sun has not changed. The price of generating 1 Megawatt Hour of electricity from wind is about £37, but the price of generating the same amount of electricity from gas has soared to £200! That is why our prices have risen and why so many people are being pushed into fuel poverty, with over 6 million UK households likely to find themselves in this position by the last estimate. So why, if you are only using power from renewable sources, have your prices risen so sharply?
The answer is a technical one but in short, everyone who generates electricity commercially feeds it into the national grid and whether you buy green or not you pay the total cost of all the electricity we produce as a country (gas, nuclear, wind, solar, hydro etc.). The price is decided by the market, capped by the regulator Ofgem and bought in bulk by energy companies by the year, month, day or even hour.
Historically, renewable energy sources have been more expensive, but they have come down in cost over the past 15 years to be cheaper than coal and nuclear and only a little more expensive than gas. But now, with the massive rise in gas prices, renewable energy is the cheapest way to generate electricity. This presents a real opportunity to encourage massive investment in green energy, reducing prices for consumers at the same time.
Against this background, I’m pleased to see that the UK Government has started a consultation to explore charging consumers (that’s you and me) the actual cost of the energy we use. This means that if you have a renewable energy tariff, you will pay the true costs of generating that electricity, and if you have a fossil fuel tariff you’ll pay the true cost incurred by that method of electricity generation. It’s worth bearing in mind that prices will rise and fall for renewable and fossil fuel tariffs and your renewable energy tariff may become more expensive in the long term if gas prices fall again. But what better way to encourage people to go green than by charging people the true price for their electricity they use? Not only will this reduce our carbon emissions, it could take many people out of fuel poverty and keep energy prices much more stable.
There are of course complexities in this situation and separating energy prices in this way is a long term solution. There is a limited supply of renewable energy and it is already taken by those of us on renewable tariffs, so there is not huge capacity waiting to be offered to those in fuel poverty. Separating prices in the short term would potentially push up prices for those on non-renewable tariffs, ultimately making the situation worse.
But, in the long term, charging consumers based on the type of energy they use can only encourage sustainable investment, reduce the costs of renewables and speed up the decarbonisation of our grid. That is why I support the separation of tariffs and will be contributing to the government consultation.
You can read more about the consultation into renewable electricity and find out how appropriate stakeholders can contribute to the discussion on the UK Government website.
