Energy prices, shale gas and a campaign of misinformation

When the energy company SSE put prices up last week by an average of 8.2%, it blamed, among other things, government-imposed green levies collected through gas and electricity bills.

Three days later, the company told the FT that government green energy policies would put up bills by £26 a year by 2015. In the same week David Cameron ordered a review of green taxes, saying they “shouldn’t be there for a second longer than they needed to be”. And at Prime Minister’s Questions, he claimed Labour’s commitments to a low carbon economy would add £125 to everyone’s bills in the country.

So should support for green energy get the blame for rising prices? Or are we being softened up for a dash for shale gas and cuts to renewables?

“Concerted campaign to mislead”

Lord Stern, the former head of the government economic service and the author of a global review of climate change economics, thinks we are being deliberately misled about the cause of price increases. He told the BBC: “There is currently a concerted campaign to mislead the British public about the factors that are driving up consumers’ electricity and gas bills.”

He said the real culprit was the rising price of gas. The UK’s dependence on fossil fuels had, he said, generated three-quarters of the increase. Less than a fifth of the rise was forced by green taxes, and most of that went to help poor families insulate their homes.

Last week, The Guardian analysed household energy costs. Of the average bill of £1,267, it said £112 was the cost of energy, climate change and social policies. That figure was made up of £47 for energy saving measures for low families and £11 for pensioners’ warm home discount. The subsidy for renewables was £30 and the carbon floor price £5.

The paper said: “The overwhelming reasons for power bills soaring are that fossil fuels are getting more expensive and that two decades of under-investment by energy companies in the UK’s now creaking energy system has left customers with a steep bill to catch up.”

Don’t cut support for renewables”

Lord Stern warned that fossil fuel prices were likely to continue to rise and support for renewables would make bills cheaper in the long run. The Deputy Prime Minister, Nick Clegg, speaking last week at a business start-up centre in London, said green subsidies were needed to spur the investment needed to keep the lights on.  He said: “Like everyone else I want us to strain every sinew to keep those bills down – but I don’t think anyone should think that by scrapping all the levies suddenly with one bound we will be free. We won’t”.

“Shale gas won’t help”

Nor will shale gas exploitation bring lower prices. Lord Stern said it may take many years to develop UK shale gas and even then it would probably not make much difference to fuel bills because “the UK is unlikely to have big enough reserves to reduce European gas prices, which determine wholesale prices.”

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