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 January 18, 2012
Government rejects latest "flawed" report on cost of renewable energy policies

 Patience is obviously wearing thin. Following the release today of the third major report in the last two months criticising the cost of the Department of Energy and Climate Change's (DECC) renewable energy policy, officials have hit back branding the latest report from the Policy Exchange thinktank as "flawed" and "not credible".

The report from the Policy Exchange -- which follows a similar analysis on the cost of wind energy this month from Civitas and a highly controversial report last year on the cost of green policies from KPMG -- estimates that full cost to households of the government's renewable energy policies will reach an average of £400 a year by 2020.

In the government's recent Annual Energy Policy Statement, Energy and Climate Change Secretary Chris Huhne highlighted DECC projections that the government's full package of green policies, including energy efficiency measures as well as renewable energy subsidies, will result in a seven per cent cut in average energy bills by 2020 compared to a business-as-usual scenario.

However, the Policy Exchange report, entitled The Full Cost to Households of Renewable Energy Policies, challenges the government's projections, arguing that DECC has failed to take account of a series of additional costs that will result from the government's support for costly renewable energy technologies such as offshore wind.

In particular, it argues the government's estimates ignore the cost of policies paid through general taxation, such as the Renewable Heat Incentive, and downplay the higher prices manufacturers will charge for products as they respond to rising energy prices and demand for energy efficient products.

The report estimates that when these additional costs are included the average cost to households will reach £400 a year -- equivalent to an extra 2.5p on VAT.

Simon Less, Head of Environment and Energy at Policy Exchange, said that the government should be pursuing policies that allow the UK to "go greener, cheaper".

"Unnecessarily expensive policies that put additional strain on squeezed household budgets will not help win the sustained public support needed to address climate change," he said in a statement. "Greater transparency is needed about the full impact of policies on households in order to build public support for climate action."

The report recommends that while renewable energy technologies will play a role in decarbonising the UK's economy, the government should scrap the EU's renewable energy target for 2020, the feed-in tariff incentive scheme, and the Carbon Reduction Commitment scheme, and instead "exploit the power of market processes to innovate and discover over time the best routes to decarbonisation" by providing a "credible, long-term carbon pricing framework".

However, the report received short shrift from DECC, with a spokesman insisting the centre-right thinktank's analysis and its estimate that household costs will rise by £400 were "wrong".

"£400 is wrong, it is not a credible figure, and appears to be based on flawed analysis," he said. "The report overestimates costs while ignoring key benefits of policies. Our policies are aimed at keeping the lights on and bills down, boosting energy efficiency and helping get us off the hook of relying on imported oil and gas by creating a greener, cleaner and ultimately cheaper mix of electricity sources right here in the UK."

He also rejected Policy Exchange accusations that the government was not being sufficiently transparent over the cost of renewable energy policies.

"We are being open and transparent about the impact of our policies on people's energy bills," he said. "We have published a full breakdown of the impacts, which shows that when you take both costs and benefits into account, by 2020 energy and climate change policies will have a net effect of reducing the average domestic dual fuel bill by seven per cent (£94), compared to a scenario where we didn't implement our energy and climate change policies."

Government sources were privately even more scathing of the report, arguing that the recent series of studies on the projected cost of renewable energy policies all followed a similar pattern of making bold statements that then "don't quite stack up" when the assumptions contained in the reports are analysed.

One source also noted there was nothing to stop thinktanks that are analysing green policies from meeting with DECC economists before publication of their reports in order to understand the methodologies that underpin the government's projections.

"Suffice it to say, we will not be changing renewables policy as a result of this report," he added.

Green and renewable energy groups also attacked the Policy Exchange report's analysis, arguing that its recommendations would ensure that the UK becomes ever more reliant on imported gas.

"It was overreliance on gas -- what you get when you leave generation decisions to the market -- which led to record energy bills in 2010, not renewable energy policies," said Jenny Banks, energy and climate change policy officer at WWF-UK. "Calling for less regulation and a let-the-market-decide approach to energy policy also seems slightly naïve, as we're still living through the aftermath of the biggest market failure the world has ever seen, which was partly caused by not enough regulation."

Her comments were echoed by Jennifer Webber, RenewableUK's Director of External Affairs, who similarly argued that reliance on gas lay at the root of the recent surge in energy prices.

"Policy Exchange is wrong to be worried about offshore wind," she said. "The real danger to household bills over the next 10 years comes from the same kind of uncertainty about the cost of imported fossil fuels we've seen over the previous 10 -- a decade in which gas prices more than doubled. Britain's fantastic wind power resource -- the best in Europe -- can help reduce that uncertainty."