How much will closing the Renewables Obligation early save on your bills?

Published: 2nd Dec 2015

In brief

Claim

Closing the Renewables Obligation to onshore wind early will save households 30p a year.

Conclusion

The government's best estimate is that the early closure will cut the average household's electricity bill by 30p, but there's some uncertainty to this estimate.

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"To be clear, in the Government's impact assessment the overall estimation of what the measure will save is 30p for a household for a year."

Baroness Worthington, 21 October 2015

While closing the Renewables Obligation to onshore wind a year early is certainly generating  controversy, it might not be generating quite as much in the way of savings for consumers according to Labour peer Baroness Worthington.

The government expects the average household's bills to fall by 30 pence a year (in 2014 prices) thanks to the decision to close the subsidy early, but there's some uncertainty about what the exact impact will be.

Its initial plans have been rejected by the Lords, but the government tells us it intends to reintroduce the closure into the Bill in the Commons.

Your bills could be £3.40 lower, or they might not change at all

The Renewables Obligation (RO) is a way of subsidising the producers of renewable energy.

This scheme was going to close to all new generation capacity from April 2017, but the government now intends to close it a year earlier for onshore wind. This means that some projects that might have qualified for the subsidy—those that have applied for planning permission but which haven't yet received it—will no longer do so, and may not be constructed.

Not all projects with a planning application submitted would have been constructed anyway—the overall impact on consumer bills of cancelling the RO depends on how much capacity that would have been built ends up being cancelled.

The government's best estimate is that closing the RO early will take about 30 pence off the average household's electricity bill in 2016/17, with total spending on the scheme falling by £20 million (in 2011/12 prices).

The exact amount by which bills would fall isn't certain. If closing the RO early means that a large amount of onshore wind that would have qualified for the subsidy doesn't, then spending on the subsidy could fall by £270 million (also in 2011/12 prices), with yearly bills falling by £3.40 (2014 prices).

On the other extreme, closing the RO early might not result in any reduction in bills. If no projects miss out on funding because of the early closure, then there'd be no change in the amount paid out in subsidies. In this case, for obvious reasons, bills would not be reduced.

That's the direct impact. Switching from onshore wind to an alternative generation mix—assumed to be Combined Cycle Gas Turbine (CCGT) generators in the impact assessment—could have additional, indirect impacts on people's bills. Moving towards CCGTs would reduce the estimated cost of generating electricity, lowering prices, while the UK power sector would have to purchase additional allowances for the EU Emissions Trading Scheme, raising prices. These potential changes aren't included in the 30p figure.

Government borrowing won't change directly

The Renewables Obligation is a subsidy paid by energy suppliers, so scrapping it won't have any effect on Mr Osborne's attempt to close the deficit.

But the scheme is included in some measures of government spending. Energy suppliers wouldn't pay these fees (and generators wouldn't receive them) if the government wasn't making them do so, so in the National Accounts the buyout payments collected and distributed through the scheme are listed under taxes and subsidies.


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