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 .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 )
Table 1: Measures given out by CESP
|Measure Type||Measure||Number of measures|
|Cavity wall insulation||3,000|
|Solid wall insulation (internal)||5,002|
|Solid wall insulation (external)||75,255|
|Heating controls provided with a new heating system||60,016|
|District Heating||District heating (connection to)||6,459|
|District heating (upgrade)||11,247|
|District heating meter for individual house billing||6,026|
|Solar Water Heater||485|
|Behaviour||Home energy advice package||94|
The breakdown of measures from CERT are given in . 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|
|Window glazing (m2)||34,590,263|
|Hot water tank jackets||436,958|
|Radiator panels (m2)||259,851|
|Flat roof insulation||701|
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 . 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**.
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.
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.
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
[*] 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.