Government policies will force household electricity bills to rise by a fifth over the next four years even if wholesale prices fall, according to an industry leader.
Rachel Fletcher of Octopus Energy told a committee of MPs that “non-commodity costs” such as levies to meet climate change targets or to support nuclear expansion were ending up on consumers’ bills and making Britain’s electricity among the most expensive in the world.
Ms Fletcher, the company’s director for regulation and economics, added there was little budgetary control over these additional costs.
“If we continue on the path that we’re on right now, in all likelihood electricity prices for a typical customer are going to be 20% higher in four or five years’ time and that’s even if wholesale prices halve,” she told the Energy Select Committee.
“We completely support the decarbonisation of electricity that will begin to bring wholesale prices down. But the non-commodity costs are adding about £300 of pressure on to a typical bill. We’ve got to do something radical to address that.
“The country as a whole is paying £20 billion a year on their electricity bills for policy costs. The projections are that that is going to increase. That is one of the £100 that is possibly going to be added to bills on the current trajectory over the next four years. I think it’s time we got this burden under control.”
She added: “There is a lot of good stuff being funded in that £20 billion, but the reality is that it’s added to, incrementally… department over here puts in a subsidy for new nuclear, department over there puts in a subsidy for CCS [carbon capture and storage].
“There is no budgetary control of this and yet it all ends up on household bills, or in contributing to making our electricity some of the most expensive in the industrialised world.”
Chris Norbury, chief executive of E.ON, said: “If I look at the non-commodity costs, policy costs, network costs, then certainly some of the numbers, some of the modelling, suggests that you could get to a position by 2030 where if the wholesale price was zero bills would still be the same as they are today because of the increase in those non-commodity costs.
“There are things that I think we can do there, we can move some of those non-commodity costs, particularly the legacy policy costs, feed-in-tariff, climate change levy, renewable obligations, off the electricity bill. That would help bring bills down.”
Simone Rossi, chief executive of EDF Energy, said: “As Rachel has alluded to, what we have in front of us is a system where even if the wholesale price were to halve, as she indicated, bills will rise.”
Claire Coutinho, Shadow Energy Security and Net Zero Secretary, said: “As I told the Energy UK conference this week, we need to be much more clear-eyed and honest about the costs coming down the track.
“If the case to be made is that you think it is worth paying a premium for wind and solar to have clean energy at a much higher fixed price, then make that argument to the public.
“They are currently being told that the current path will bring their bills down when it is demonstrably not the case.
“When people argue that business needs certainty, I say that promising the public something (lower bills) which can’t be delivered with your political plan is not certainty. It is a recipe for public outrage.”
A UK government spokesperson said: “We categorically reject this speculation. Wholesale gas costs for households remain 75% higher than they were before Russia invaded Ukraine in 2022, and the main reason energy bills remain high.
”The only way to bring down energy bills for good is by making Britain a clean energy superpower, which will get the UK off the rollercoaster of fossil fuel prices and onto clean, homegrown power that we control.”
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