#greentax


How the green levies help reduce fuel poverty

There has been a large amount in the media recently over the “green levies” on fuel bills, or as some refer to them, the “green taxes”. On Wednesday the 23rd October this became more prominent politically after an announcement in Prime Minister’s Questions to review them. However, there is a large amount of misunderstanding and misinformation regarding these levies.

The first question is what percentage of the average bill is actually due to these levies? The Department of Energy and Climate Change (DECC) has calculated the energy bill split, which is shown in Figure 1. As can be seen, the “green levies” actually make up a small amount of the bill [1].

UK average dual fuel breakdown from [1]Figure 1: UK average dual fuel breakdown from [1]
However, an important question to ask is; what are these levies actually for? They are split up into three main parts:

  • Fuel poverty alleviation measures (£61 a year – 4.8% of an average dual fuel bill)
  • Renewable Energy Support (£37 a year – 2.9% of an average dual fuel bill)
  • Climate Change Policies (£13 a year – 1% of an average dual fuel bill)

With the figures of how much these measures cost, now let’s look in more detail at each of them.

Fuel poverty alleviation measures (£61)

The issue which is missed in most of the media is that the energy efficiency parts of the bills are spent on lifting people out of fuel poverty. This £61 is spent on three different measures:

  • Warm Home Discount (£11 a year – 0.9% of an average dual fuel bill)
  • Smart Metering and Better Billing (£3 a year – 0.2% of an average duel fuel bill)
  • ECO Energy Efficiency Scheme (£48 a year – 3.8% of an average dual fuel bill)

Warm Home Discount Scheme

This is for elderly people who have a low income. Specifically, it is for people who are:

  • 75 or over and getting the Guarantee Credit element of Pension Credit (even if you get Savings Credit)
  • Under 75 and only getting the Guarantee Credit element of Pension Credit (you won’t qualify if you also get Savings Credit)

This discount can be up to £135 on bills. The removal of this £11 on everyone’s bills would mean pensioners on low incomes would be pushed further into fuel poverty. More information on the shceme can be found here: The Warm Home Discount scheme page on gov.uk

Smart Metering and Better Billing

The £3 that the average user pays towards the energy companies a year for Smart Metering and Better Billing is spent on the roll out of smart meters, which will be completed by 2020.

The ideas behind this are that they will allow more accurate bills, and also allow people to understand how they are using energy in their own home with more clarity, and so save energy. It is intended to help with reducing fuel poverty, but also it will help the electrical networks through giving a better picture of where energy is being used and where it is not.

ECO Energy Efficiency Scheme

This is the major part of the “green tariffs” which are opposed by certain parts of the media. The idea of ECO is to insulate the homes of those in the worst fuel poverty. It replaced the CERT and CESP schemes which insulated many homes across the UK. If you had free cavity wall insulation and loft insulation given to you in the past few years, this is how it was funded.

The breakdown of measures provided by CESP is given below (taken from [2])

Table 1: Measures given out by CESP
Measure Type Measure Number of measures
Insulation Loft insulation 23,503
Cavity wall insulation 3,000
Solid wall insulation (internal) 5,002
Solid wall insulation (external) 75,255
Draught proofing 13,010
Glazing 21,779
Flat-roof insulation 1,791
Under-floor insulation 151
Heating Replacement boiler 42,898
Heating controls provided with a new heating system 60,016
Fuel switching 11,066
District Heating District heating (connection to) 6,459
District heating (upgrade) 11,247
District heating meter for individual house billing 6,026
Microgeneration Heat Pump 594
Solar Water Heater 485
Photovoltaic panel 11,546
Behaviour Home energy advice package 94
Total 293,922

The breakdown of measures from CERT are given in [3]. These covered energy heating, lighting and energy efficient appliances. The energy companies were allowed to decide how to spend the money, but it had to result in saving energy, and over 40% had to go to priority groups (pensioners and those on particular benefits). The insulation measures were:

Table 2: The insulation measures given out from CERT - please note there were many other measures as well
Cavity wall insulation 2,568,870
Professional loft insulation 3,897,324
DIY loft insulation (m2) 112,850,996
Solid wall insulation 58,916
Draught proofing 23,986
Window glazing (m2) 34,590,263
Hot water tank jackets 436,958
Radiator panels (m2) 259,851
Flat roof insulation 701
Fuel switching 108,516
Shower regulators 9,653,441
Replacement boilers 31,986
Heating controls 1,454,336
Communal heating 92

Other measures included 303 million light bulbs, which OFGEM stopped on the 1st of January 2010 over concerns because it was not clear whether they were being used and research suggested enough had been distributed to satisfy demand. Further measures included renewable energy systems and energy efficient appliances.

With ECO, the government now feels that enough of the “easy” to insulate homes have been improved. There are many homes which are more difficult to insulate, such as those with solid walls and no cavities. ECO is designed to help those in “hard to treat” homes. The energy companies are obligated to use this money to “provide measures which improve the ability of low income and vulnerable households”, ie. People in fuel poverty.

An example of these improvements can be seen in Figure 2 below taken from [4]. These show the difference between a typical post war system built house without insulation, and the next door neighbour which has external wall insulation. As can be seen, the loss of heat from house B is significantly reduced**.

 

Figure 2: Thermal image of Wimpey No Fine system built homes. "A" has no insulation and "B" has external wall cladding. Homes like "A" are to be targeted under ECO using measures like "B" has.Figure 2: Thermal image of Wimpey No Fine system built homes. “A” has no insulation and “B” has external wall cladding. Homes like “A” are to be targeted under ECO using measures like “B” has.

Renewable Energy Incentives (£37)

  • Feed in Tariffs (£7 a year – 0.6% of the average dual fuel bill)
  • Renewables Obligation (£30 a year – 2.4% of the average duel fuel bill)

Feed in Tariff

Obviously, the main driver for these is to tackle climate change, but that is another subject for another blog. The Feed in Tariff has led to a major increase in jobs in the UK, all for (on average) £7 a year per household. Destroying the Feed in Tariff so save £7 a year per household would lead to massive redundancies in the domestic renewable energy installer market – as well as the supporting industries. Destroying businesses and encouraging redundancies will clearly throw more families into poverty.

An important point which is not considered when criticising the Feed in Tariff is that many housing associations have used the Feed in Tariff to allow them to roll out renewable energy to residents. Many social housing areas in the North East of England now have solar panels, which can reduce residents energy bills by £65* a year. This is an example of how the Feed in Tariff is used to reduce fuel poverty. Housing Associations involved in such schemes include South Tyneside Homes, Your Homes Newcastle and South Tyneside Homes.

Renewables Obligation

Moving onto the Renewable Obligation, increasing renewables will also insulate the UK against the ever increasing wholesale costs of fossil fuels. This is one of the economic arguments for renewable energy.

Carbon Taxes (£13)

£13 a year from the average bill go to actual taxes on carbon. These go to the European Emission Trading Scheme (EU ETS) and the Carbon Floor Price. Tackling climate change is vitally important, but the purpose of this blog is not to discuss these issues, it is to discuss how “green levies” are spent. Approximately £1 a month per household goes to actual real carbon taxes.

Summary

The majority of Green Levies go to schemes to reduce fuel poverty. By removing this funding, those who are most vulnerable will have no support to improve their homes and lift them out of fuel poverty. Renewable Energy funding will help insulate the UK against future wholesale gas prices, and is also used by housing associations to fund schemes to lift residents out of fuel poverty. The only real “green tax” is the £13 which goes to the EU ETS and Carbon Floor Price. Removing that won’t really help with bills.

Essentially, removing the “green levies” component of energy bills will remove assistance for those in fuel poverty.

For more information on hard to treat homes and fuel poverty, please see: ERDF Social Housing Energy Management Final Project Report

Works Cited

[1] Department of Energy and Climate Change, Estimated impacts of energy and climate change policies on energy prices and bills, London: UK Government, 2012.
[2] OFGEM e-serve, Community Energy Saving Program Update, London: UK Government, 2013.
[3] OFGEM e-serve, The final report of the Carbon Emissions Reduction Target (CERT) 2008-2012, London: UK Government, 2013.
[4] Narec Distributed Energy, ERDF Social Housing Energy Management Project – Final Project Report,  Blyth: National Renewable Energy Centre, 25th October 2013

 

[*] This is based on a price of £ 0.146057/kWh for electricity, based on data from www.energy.eu. The energy yield of a photovoltaic system pointing south at an incline of 35° based in Newcastle is 902 kWh/year. We assume only half this electricity is used by the resident and the rest exported.

[**] It is important to state the example below was paid for by the European Regional Development Fund (ERDF), not ECO, but it is a good image of the type of work ECO is designed for.

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