UK energy schemes to cost households an extra £100 per year by 2020-21

A review by independent consultancy Cornwall Energy has found that UK households will pay an extra £100 per year within five years in order to support government policies aimed at boosting low-carbon electricity and maintaining the energy supply. The report finds that energy subsidies will have increased 124% by 2020-21. The main causes of the increase will be renewable commitments, contracts for difference, feed-in tariff schemes and the cost of the capacity market. The review also anticipates that three of the subsidies, not including the capacity market energy security scheme, will have cost £100m more than the limit of the levy control framework, at an overall cost of £7.7bn by 2020. Last July, the Office for Budget Responsibility estimated an overspend of £1.5bn.

Households will be paying £100 more for their annual bills within five years to fund four government policies designed to keep the lights on and support low-carbon electricity, according to a review.

Independent consultancy Cornwall Energy said energy subsidies will have risen by 124% by 2020-21 due to the cost of the capacity market, renewable obligations, contracts for difference and feed-in tariff schemes.

The cost estimates will anger Conservative backbenchers opposed to subsidising green energy, even if it is designed to play a key role in the fight against climate change.

“While the future path of wholesale prices remains uncertain, policy costs are moving only in one direction,” said Jo Butlin, the managing director of Cornwall.

“Our research shows a confluence of factors serving to push these costs up notably in the next couple of years, though important drivers that could yet change the outlook remain beyond anyone’s control.”

Cornwall estimates that three of the renewable energy subsidies, excluding the capacity market energy security scheme, will have cost £7.7bn by 2020 – £100m more than the spending limit of the levy control framework.

The figure compares with an estimated £1.5bn overspend predicted by the Office for Budget Responsibility last July.

The government said it had taken various steps to reduce the burden on customer bills in the past 12 months.

A spokesperson for the Department of Energy and Climate Change said: “Through the halting of subsidies for onshore wind in the [2013] Energy Act, to added competition driving down costs in contract for difference auctions and the capacity market, our actions have shown that we will be tough on subsidies in order to keep bills down for our families and businesses, and ensure value for money.”

The cost of energy has long been a source of friction between providers and consumers, although some retail bills have been cut by suppliers over the past 12 months, albeit on the back of lower wholesale commodity prices.

SSE, one of the big six energy companies, was criticised after it announced on Wednesday that it had kept annual retail profits steady at £455m, despite losing 370,000 customers to lower-cost competitors.

National Grid, which operates pipes and pylons in England and Wales, reported on Thursday that pre-tax profits were up by 15% to £3bn in the year to March. Last autumn, energy regulator Ofgem said the average dual fuel domestic bill was £1,345.

While Labour MPs have generally supported the green subsidies needed to support the development of solar and wind farms, the capacity market has been heavily criticised.

Lisa Nandy, the shadow energy secretary, said the scheme to encourage energy companies to keep their power plants online to meet periods of peak demand was a “massive waste of money”. This was because previous payments had ended up going to nuclear facilities and other plants that would have stayed open regardless, or funded carbon-heavy diesel generators, she said.