Minister may cut electricity bills’ green levies
CLAIRE COUTINHO is considering removing £4bn of green levies from household electricity bills, amid warnings they are making heat pumps and electric cars more costly.
The Energy Secretary received an official report at least two months ago on the proposal including moving some or all of the levies to gas bills, or shifting them entirely into general taxation, both of which could prove controversial.
The suggested changes have been put forward amid concerns that the weight of green levies on electricity bills are holding back progress on net zero. Ms Coutinho is now considering the options put forward, with the Government committed to “rebalancing” gas and electricity prices.
Green levies, also known as “policy costs”, fund payments for renewable energy schemes, insulation programmes and bill support for low-income pensioners.
They add about £142 to the typical electricity bill under the current energy price cap, excluding VAT, compared to just £46 to the typical gas bill.
The difference largely results from the fact that only electricity users pay for the renewables obligation and the feed-in tariff schemes, which together cost £107.
Ministers first pledged to shift the charges away from electricity bills more than two years ago, amid concerns that they effectively punish households for adopting electrically-powered heat pumps or battery-powered cars.
Mass adoption of both technologies is a central plank of the Government’s plan to reach net zero carbon emissions by 2050.
However, shifting the levies elsewhere may prove controversial. It was previously seen as fairer to put them on electricity bills because virtually all households are connected to the power grid, whereas only around 85pc are connected to the gas grid.
Last month, 16 organisations, including Nationwide and energy giant EDF, called on the Treasury to scrap the levies for electrically heated homes.
An energy industry source said: “The Government committed to fixing this ages ago but they’ve still done nothing about it. A lot of investment is still being held back in heat pumps and electric cars because we have this crazy energy situation.”
Adding levies on to gas bills would spread the costs among fewer households, pushing up energy bills for households connected to the gas grid by more than £20 per year according to some estimates.
The pool of people paying would also become smaller as more people switched away from gas, potentially exacerbating fuel poverty, some experts have warned.
That has prompted calls for the charges to instead be moved into general taxation – another change that may prove controversial given today’s historically high tax burden.
Removing the levies from electricity bills would create a much bigger incentive for people to adopt heat pumps and electric cars.
Energy companies such as Centrica, E.ON, Octopus, EDF and Ovo have backed the move and warned that the current setup creates “perverse” incentives for customers.
A source close to Ms Coutinho said she had received the report on green levies but stressed no official decisions had been taken. It is thought a decision is unlikely before May’s local elections given sensitivities around energy bills.
A general election must happen no later than January 2025, giving the Government a relatively short window to push through any legal and regulatory changes.
The Department for Energy Security and Net Zero said ministers wanted to “make it easier for consumers to make the switch to green products by rebalancing prices between gas and electricity”. A spokesman said it would set out plans “in due course” and said that any proposals would have to be affordable and fair to consumers.