Electricity industry insiders are calling for a radical shake up of the way in which energy bills are calculated in an attempt to prevent the UK descending into an energy death spiral. The latest to speak out are Iain Conn, CEO of British Gas owner Centrica, and Vincent de Rivaz, CEO of EDF Energy who have called on government to change the current regressive payments system once the UK is free from the EU state aid rules.
According to Emily Gosden in the Telegraph:
“About 13pc of a typical household electricity bill is made up of environmental and social levies to fund green subsidies and insulation schemes, while a further 25pc of an electricity bill consists of levies to fund network infrastructure.”
These costs fall disproportionately upon the shoulders of the poorest consumers, who are obliged to pay a large standing charge even if they are too poor to consume much energy. On the other side of the equation, a growing number of affluent households have taken advantage of energy efficiency schemes and rooftop solar feed-in tariffs both to cut their energy use and to profit from any surplus that they generate:
“A household that installs solar panels – usually in return for subsidies – will buy less power from the grid and so will contribute far less to the network costs, despite being equally dependent on it when the sun doesn’t shine.”
Current EU state aid rules prevent government paying for infrastructure and green energy initiatives out of general taxation. Instead, successive governments have obliged energy suppliers to add the costs as a levy on customers’ bills. This generates a theoretical ‘death spiral’ in which rising prices drive the poorest people to voluntarily disconnect themselves while the wealthy use renewable energy systems to generate more of their own electricity. The theoretical end point would be that a single household in the middle would end up paying the entire cost of maintaining the National Grid (although clearly the system would collapse long before that point was reached).
One of the benefits of leaving the EU would be that the British government could once again fund the country’s energy infrastructure out of (more progressive) taxes. Indeed, while the energy company CEOs did not mention it and are unlikely to support it, another benefit of leaving the EU is that a future government will be able to renationalise the entire energy industry.