By Gerard Wynn
LONDON Oct 17 British government plans to
review payments for making homes more energy-efficient are
political posturing - an attempt to show concern over rising
electricity bills, but sounding more like desperation.
Efficiency should be the centrepiece of efforts to curb
households' energy costs, not a victim.
Prime Minister David Cameron was "reviewing" the country's
main energy savings programme, under wider efforts to ease
family budgets, the Financial Times reported last week.
Cameron's spokesman was not available for comment on Thursday.
Centrica, one of the country's biggest suppliers, on
Thursday raised prices by an average 9.2 percent, following a
similar increase by SSE last week.
Opposition leader Ed Miliband's proposal to freeze energy
bills if he wins the next general election in 2015 has presented
a problem for a government whose hands are tied.
Britain has among the highest wholesale power prices in
Europe, but residential bills that are below the EU average.
(Charts 1 and 2)
The high wholesale price reflects a dependence on gas-fired
power and a recently introduced carbon tax.
The most obvious tack to reduce bills is to lower or
eliminate the tax.
But the main purpose of the tax is to make nuclear power
economic: the government is poised to announce a deal for a
power purchase agreement with French state utility EDF
to build Britain's first new nuclear plant in nearly 30 years.
Without the tax, Britain would have to pay more under the
deal, an unpalatable option since the government has said it
will not subsidise nuclear power.
Britain is in no position to slash support for renewable
power, given it is miles behind mandatory European Union targets
for renewable energy in 2020 (presently at 4.1 percent of all
energy compared with a target of 15 percent).
And that leaves efficiency payments.
Under Britain's 1.3 billion pound ($2.1 billion) annual
Energy Company Obligation (ECO) scheme, utilities must cut their
customers' energy consumption through home retrofits, focusing
on low-income households, and whose costs are passed to all
The policy, introduced this year, is in line with an EU
efficiency law which last year required member states to
establish obligation schemes.
Under the EU Energy Efficiency Directive, larger suppliers
will have to help households and businesses cut their
consumption by an amount equivalent to at least 1.5 percent of
their annual energy sales.
Utilities can achieve the savings themselves, for example by
distributing free low-energy light bulbs to customers, or pay
into a central fund used to retrofit homes.
Under the directive, Britain could replace its obligation
scheme with another policy that achieved equivalent savings,
such as a carbon tax, and so the government could argue that it
does not need both its carbon tax and the ECO programme.
"Member States shall notify to the (European) Commission, by
5 December 2013, the policy measures that they plan to adopt,"
the directive states.
The existing obligation scheme is working well, government
data shows, compared with other initiatives, making the idea of
reviewing it more perplexing.
In May, some 33,765 efficiency improvements were made under
the ECO programme (from new boilers to loft insulation),
compared with 2,973 in June under a "Green Deal" retrofit scheme
that also started this year and is available for all households.
The difference probably reflects the fact that under the
Green Deal more of the costs will be borne by the beneficiary
rather than passed on to all consumers.
Countries outside Europe are also introducing energy
obligation schemes, according to the International Energy Agency
(IEA), which published its first energy efficiency market report
on Wednesday intended to complement its long-running oil market
The IEA reported that China requires electricity supply
companies to cut power consumption by 0.3 percent annually
through end-use efficiency and upstream savings, for example
along transmission lines.
And ratepayer-funded energy efficiency has been a pillar of
U.S. efforts since the late 1990s, the IEA said, with spending
growing to $7 billion in 2011.
"Energy savings from ratepayer-funded electric efficiency
programmes (are) projected at 210 TWh (terawatt-hours) to 255
TWh in 2020, equivalent to 6 percent of projected electricity
consumption in that year," it said.
"Depending on electricity sales growth over the period,
these annual energy savings levels could result in a net decline
in electricity sales."
Subsidised efficiency schemes are the best way to bring down
energy consumption and bills in the short and long term.
It would be extraordinary if Britain decided to scale back
its biggest home efficiency scheme against the guidance of such
basic energy economics.
But the fact that the senior party in the ruling coalition
is reviewing whether to do just that, shows how rattled it is by
the opposition's pledge to freeze bills.
At present, Britain does not have high household electricity
prices compared with the rest of Europe, something the
government could emphasise.
The country's household electricity prices last year ranked
12th among the 28 European Union countries, according to data
from Eurostat, the EU statistics office.
Bills will rise, however, as the country deploys more
renewable energy, including expensive offshore wind, and as its
carbon tax increases over time, as scheduled.
At least a freeze in the carbon tax would make sense, if the
country's pro-nuclear policy allows it.