Households face £400 hit from net zero push

ACHIEVING net zero risks increasing households’ energy bills by £400 a year after a jump in interest rates, a leading think tank has warned.

Higher borrowing costs will massively inflate the cost of the green transition, the Resolution Foundation said, with consumers paying an additional £29bn annually for energy by 2050 if rates do not return to 2019 levels.

Since the energy crisis triggered soaring inflation and big increases in interest rates, which have risen from 0.1pc to 5.25pc, the cost of borrowing to invest in renewable energy projects has climbed from around 5pc in 2019 to 9pc today. As Britain pushes towards net zero, those costs will become responsible for a greater proportion of household energy bills than the price of fossil fuels.

Jonathan Marshall, senior economist at the Resolution Foundation, said: “Cleaner energy could be cheaper energy, if interest rates return to the low levels seen during the 2010s. But we can’t count on that. If interest rates stay high, energy costs will rise rather than fall in the years ahead.”

The UK needs to triple capital spending on electricity generation and quadruple investment in its power networks to meet projected demand for electricity if it is to reach its goal of net zero carbon emissions by 2050. Electricity accounts for 22pc of the energy consumed by Britain’s homes and 4pc of that used by road transport. Those proportions need to rise to 100pc by 2050 as consumers shift to heat pumps and electric cars.

In the decade to 2035, fuel will fall from 65pc of the total cost of running the electricity grid to 15pc. At the same time, the cost of capital investment as a proportion of the total bill will rise from 8pc to 53pc.

Borrowing costs for offshore wind projects are around 9pc. If rates stay at this level, £400 per year will be added to a typical household’s energy bill. By contrast, if the cost of borrowing for wind project investments falls back to 5pc, households would save between £250 and £1,000 by 2050.