Does renewable energy cause fuel poverty?

There has been a great deal in the news over the past 12 months over how renewable energy subsidies are increasing the prices of energy, and how they are increasing fuel poverty. But how true is this? What real effect does renewable energy have on bills?

It is true that bills are increasing, and that this is having an impact on fuel poverty levels. A detailed breakdown of cost increases is given in the report “Household energy bills – impacts of meeting carbon budgets” by the UK Government’s Committee on Climate Change, the bill increases were split up as follows (excluding profit margins) from 2004 to 2010 for an average dual fuel bill (electricity and gas) [1].

energy price increases in the UK - keyenergy price increases in the UK - wholesale gas = 64%, transmission & distribution = 15%,  VAT = 4%,  renewable energy = 7%, energy efficiency = 10%

Figure 1: UK dual fuel price increases 2004-2010 – notice the wholesale costs of fossil fuels dominate the price rises [1]

So, we now know the different factors that caused the bill increases. But, excluding profit, how are electricity and gas bills split up? Currently,  bills are set out as follows:

Electricity Gas
Wholesale Fossil Fuel Costs
59% 65%
Transmission, distribution and metering 22% 26%
Renewables/energy efficiency/carbon price 14% 4%
VAT 5% 5%
Table 2: Fuel cost makeup in the UK [1]

It is important to stress that money funding low carbon measures, such as Carbon Emissions Reduction Target (CERT), was used to insulate homes, and thus although the low carbon measures have slightly increased bills, this money is being used to lift the most vulnerable out of fuel poverty.

From the graph above, it can be seen that renewable energy is not increasing bills. The reliance on wholesale prices of gas are a major contributor, and it seems likely that fuel bills will continue to increase with the wholesale price of fossil fuels, which are showing a general long term increasing trend.

The Future

It is important to state that a greater dependence on renewable energy will protect the UK somewhat from these increases, the UK expects to have 30% of electricity from renewables by 2020 [2] . The gas grid will be mainly natural gas, unless there is a considerable increase in the production of gas through methods such as anaerobic digestion. Currently this is limited to a few brewery waste and sewage schemes, so there is considerable growth potential.

Work by the Committee on Climate Change has shown that if renewable energy systems continue to be invested in, this will increase energy bills by £100 by the year 2020. However, not investing in renewable energy could lead to far higher bills. For example,  if fossil fuel gas is the main component of the energy system in the UK in the future, then bills could increase by £600 by the year 2050 [3].

In short, renewable energy is not the major cause of energy price increases, and not supporting renewable energy will cause bills to be increased even more.

[1] – Household energy bills – impacts on meeting carbon budgets, Committee on Climate Change, 2011

[2] – National Renewable Energy Action Plan for the United Kingdom“, UK Government, 2009

[3] – Energy prices and bills – impacts of meeting carbon budgets“, Committee on Climate Change, 2012