Why energy experts support Shapps’ slashing of the green levies
Grant Shapps has pledged to tackle the imbalance between gas and electricity costs in household energy bills which are at near record levels.
He has trailed the policy to the media in recent days, and an announcement is expected at this Thursday’s “Green Day” event when the government outlines its response to the US Inflation Reduction Act.
This $368bn (£299bn) funding pledge for renewables is the largest of its kind ever announced.
Complex policy matters such as separating renewables and gas prices from the overall price of power through REMA, review of electricity market arrangements reforms remain some way off.
However, it appears Shapps is preparing to ditch green levies on electricity bills and shift them onto gas bills.
This ‘carrot and stick’ approach give the 2.1m households across England and Wales with electric-only heating a £120 saving on their bills.
Shapps is also hoping it will encourage other households to decarbonise with heat pumps, and electrify their homes in a shift from gas.
At present, around 12 per cent of electricity bills is made up of environmental and social levies, which cost the typical household £119 a year.
By contrast, green levies on gas represent just 3.4 per cent of the total bill — or £33 per home.
Last year, Liz Truss pledged to ditch green levies to ease household bills, which received a hostile responsible from green energy groups with Good Energy’s chief executive Nigel Pocklington slamming the policy as “nonsensical.”
Shapps’ plan has received a warmer response from the industry, amid expectations green projects will not be defunded through scrapping the levy, with the question instead over whether they should be shifted onto gas as he suggested, or moved onto general taxation.
Experts wonder if tax move would help more
Kate Mulvany, senior consultant at Cornwall Insight told City PM the UK goal of decarbonising the electricity system by 2035 was at risk without more incentives for households.
However, Shapps’ plan was a doubled edged sword, as household bills for 85 per cent of gas using customers would go up amid a cost of living crisis and record energy bills.
She said: “If as proposed by Grant Shapps, these policy costs are shifted from electricity to gas, electricity bills could be reduced by £100, or even more for some households. But these costs must go somewhere, and it is likely to lead to a corresponding increase in gas bills. The effectiveness of this policy remains to be seen, and further details on its implementation are needed before any conclusions can be drawn.”
Industry body Energy UK backed Shapps’ call for the levies to be removed from electricity, but argued moving them to taxation was a more progressive position than shifting them onto gas bills.
A spokesperson: “We wait to see whether this will mean transferring these costs to gas – which would need to be done carefully given the potential cost implications for some customers – or funding them through general taxation, which is less regressive than levying on bills.”
Adam Bell, head of policy Stonehaven and former head of energy at BEIS, believed Shapps would have to jump through plenty of hurdles to enact the policy, which meant he also believed there was a strong case for shifting the levies onto taxation.
He also doubted Shapps would be able to announce anything radical ahead of Thursday.
He explained: “Rebalancing is optimally done by moving all schemes and levies onto a central body that can discharge them and not distort the market by having consumer number limits for when various levies and obligations kick in. It would take a long time to do though and I would be very surprised if the announcement is anything other than a new consultation.”
Looking to the future, clean energy player Zenobe has argued the long-term solution is to ramp up renewable technologies which could provide the solution to the UK’s reliance on gas.
Semih Oztreves, director of network infrastructure at Zenobe said: “To address the imbalance between gas and electricity costs, the government ultimately needs to focus on accelerating the build out of renewable energy technologies, like battery storage.
“Initially, the government should open up the contracts for difference scheme to all new renewable energy projects. This scheme allows the cost paid to generators for their electricity to be fixed, and consumers paid back when the gas price rises above this, offering them protection against volatility.”