Higher or lower? Scottish energy bills after independence

Published: 4th Aug 2014

"Staying in the UK would keep future energy bills for Scottish households up to £189 a year lower."

UK government Scotland Office, 1 August 2014

"We would ease the pressure on household finances by using money saved to reduce energy bills. We have set out how we plan to make a permanent and ongoing cut in household energy bills, by removing the costs of the Warm Homes Discount and the Energy Company Obligation from bills."

Scottish government, August 2014

Voters in the upcoming referendum on Scottish independence could be forgiven for having an unclear picture of what will happen to their energy bills, should Scotland say yes on September 18th. Both the UK and Scottish governments disagree over which decision on polling day will save the average customer the most money on their energy bill.

The UK government's claim is based on uncertain assumptions, and bills could in reality be higher or lower depending on what energy liabilities the Scottish government negotiates to take on and how much money it will make from trading renewable energy with EU states.

After independence the Scottish government would be able to shift some of the burden off companies and customers and pay for the subsidies itself, although it would need to find the money to do this, meaning taxpayers indirectly foot the bill.

One thing is clear: bills are likely to rise in any case, and the question is over the level of savings that can be made. Professor Euan Phimister, speaking to the BBC earlier this year, commented:

"Bills are going to rise in all cases due to increased subsidy to renewables and nuclear (in the UK case), replacement of infrastructure and of power plants which are coming offline due to environmental regulations ... How much they will rise is ultimately uncertain."

£189 (by 2020) is the top-end of an uncertain estimate

Parts of Scotland currently receive subsidies from UK coffers which help support its electricity generation. For instance, the Hydro Benefit Replacement Scheme reduces the costs to companies of distributing electricity in places where it would be otherwise expensive to do so, mainly in the North of Scotland.

In addition, the Contracts for Difference scheme, which is replacing the Renewables Obligation, supports renewable energy generation and parts of the Orkney, Shetland and Western Isles in the North of Scotland are set to benefit.

The UK government's argument is that, under independence, the costs of these and other subsidies would be borne by bill payers in Scotland rather than being spread across the UK. Their figures look forward to the situation in 2020.

Scottish bills

According to this analysis, Scottish bill payers could face anything between a £38 and £189 increase.

The large degree of uncertainty rests on whether Scotland could trade its renewable electricity with EU member states in 2020 so as to offset the costs of supporting renewables. In that year the Scottish government wants the country to be generating 100% of its electricity from renewable sources.

As the UK government concedes, there's no way of estimating what the price of those renewables will be in 2020, and so no way to tell how much this could offset the prices fed down to customers on their bills.

While this could offset the cost of funding the subsidies post-independence, there's also a factor not included that could increase the costs as well. Scotland may be liable for payments in the future such as the cost of supporting the decommissioning of North Sea oil and gas structures no longer being used.

Again, the UK government doesn't attempt to estimate how much this could affect the overall bill for energy, and the balance of liabilities would be subject to negotiation post-independence.

Taxpayers versus bill payers is a policy choice

Whether or not any increased costs would ultimately be borne by bill payers depends to an extent on the policy adopted by a future Scottish government, so its own claim needs to be considered alongside that of the UK government.

The current proposal put forward by the government in Scotland is to shift the costs of government renewable energy schemes from bill payers to taxpayers. It's currently estimated that around 8-9% of a household's duel-fuel energy bill are a result of these schemes.

Currently, programmes such as such as the Energy Companies Obligation and the Warm Home Discount are run by energy companies and some of the costs are passed on to customers. The Scottish government wants to assume responsibility for these, reducing costs to the companies which it hopes will feed through to lower energy bills.

Image credit: rheauchyr

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