As The Guardian reports this morning:
More than 30,000 jobs would be put at risk if the government were to scrap the energy bill levy that pays for home insulation improvements for poor households, the industry has warned.
This story matters. It reveals the priority of the government. Under pressure from increasing energy prices, the government's reaction is to end a measure designed to help those on low income and which is critical to progress in achieving energy efficiency in UK houses, which must be part of its net-zero programme. We have both levelling up and climate change on the table here, and the government is willing to throw both away to say £29 a year on energy bills instead of, for example, imposing an energy tax on the companies that will benefit enormously from the increase profits that increase increasing tariffs will bring.
If the government will abandon its supposed priorities on the basis of such a small pretext when alternative policy is available to them what chance is there that we can believe that this government is serious about climate change?
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Surely this dovetails with the ‘temporary’ permit to dump raw sewage in rivers and seas? Today I note the government is ‘temporarily’ delaying legislation on a selection of animal rights measures. The story behind the latter is apparently a Tory grandee who opposes ‘woke’ laws that are annoying the ‘rural pursuits’ lobby. What links these examples with your article, Richard, is the lack of commitment to ANY principle or long term policy objective. ‘Woke’, apparently, applies to any policy linked to principles of equality, fairness, justice, humanity, sensitivity. Thus, being, anti woke means you are against all these things. SS training was centred around a so called ‘Catechism’ which elaborated these Nazi ‘values’ and explained the vital concept of the sub-human, which was far wider than Jews and included all non Aryans. It appears that this unspeakable period of human history still has many lessons to be learnt. ‘Nasty Party’ doesn’t come close!
An ‘administration’ that makes it harder to protest about these matters cannot be taken seriously in the first place.
With the Tories, you have to stop listening and just watch what they do instead to see what it is doing.
In the case of thermal renovation of households, I & my partners are working with a local council. Which ever way you slice and dice this, you need £1000,s per household to make an impact i.e. reduce energy consumption by a meaningful amount (= 20% – 50%). For those interested I have 10 thermal models of houses (at different stages of thermal renovation) – which we know to be accurate.
I have just finished an article for Euractiv on the impact of electricity price rises. The focus is EU, and the reference country is Germany. That said, the conclusions certainly apply to the UK (but not quite as you may think). In Germany, (& roughly speaking) the rise in wholesale prices, the marginal pricing structure of this market and the bonkers way in which renewables in Germany are remunerated means that… each household each day pays an additional 1 Euro. This all goes to energy companies, it is a windfall profit and from Sept 2021 to now these wind fall profits amount to Euro3.5 billion. Keep in mind the Euro3.5bn is ONLY due to lousy market structures.
In the case of the UK, renewable subsidies split between ROCs (renewable obligation certificates) and Contract for difference – which mostly apply to off-shore wind. In the case of RES under ROCs, owners of large-scale renwables are, as in Germany making windfall profits from high wholesale prices. In the case of CfDs, it is the government that is enjoying a massive windfall. The Uk is a smaller market for elec than Germany and has, relatively speaking less renewables. That said, & given that wholesale elec prices in the Uk are ALWAYS higher than in the EU, it is unlikely that windfall profits (companies + gov) are much below £2bn. If we call this £2.2bn then this is roughly £100 per household. Kepp in mind, this is only for the period Sept 2021 to now. Pain will continue to come, wholesale future elec prices (Q3 2022) look like Euro90/MWh – which probably means £110/MWh in the UK.
In a sane society, the £2bn could be extracted from companies/used by gov to fund thermal reno. We don’t live in a sane society.
I proposed a Wind Energy Tax in The National yesterday
This depends on what is being taxed. If it is projects under an auctions/CfD regime then revenue from such schemes can never be windfall – because of the competition involved at the auction stage and the CfD. Prices generally reflect LCOEs – which include, for example, funding costs and “reasonable” profit – +/- 5 to 10% (over the lifetime of the project).
In the past you have posted on corporate taxes & there is no doubt that these need to be revised upwards.
In the case of wind projects under ROCs – absolutely – there needs to be windfall taxes. However, I am doubtful that this will get through. Both SSE (based in Perth) and SP (wholly owned sub of Iberdrola – Spanish outfit) will lobby hard against it – with much hand wringing etc. Given the need for massive build out of RES, given that most will be done under auctions/CfD, if it was me, I think I might focus fire power on corporate taxes – particularly foreign owned corps who tend to be very creative with respect to transfer pricing etc. It would be interesting to see how much, or how little tax Scottish Power (SP) pays in the UK.
if an independent Scottish Government adopted the proposals you made on January 18th (https://www.taxresearch.org.uk/Blog/2022/01/18/if-the-state-has-to-take-the-risk-in-smoothing-consumer-energy-prices-then-the-time-to-nationalise-the-sector-has-arrived/?fbclid=IwAR3M-HEXoW5Q-zm_0NCUj9sQqh3mw_9Pe6miSqGPaixfwZxHGG04W6jc3vs) – would there be windfall profits to be made by wind energy producers which would warrant a SWET? If I understand the implications of your proposal correctly there would be no private sector “energy suppliers” (middlemen) but instead a state owned energy supplier which purchases energy from producers and then supplies to consumers. Wouldn’t such a state monopsony in energy purchase be able to set the contractual prices for wind energy which apply limits to the levels of profit, thus reducing the importance of a wind energy tax?
But Scotland is going for private sector involvement so we need the tax, IMO
Thanks Mike – it seems there are two intertwined problems – Firstly the way the international energy market works in different countries and how in the UK there is has been no attempt to smooth pricing to minimise the peaks and troughs of local and world demand. Secondly, there is no well-thought-out national plan to improve the UK housing stock such as existed with the LA improvement grants which were available all homeowners in the ‘70’s
Reducing this to the personal level, I estimate that if the capped gas price increases by 50% in April, then I will be paying almost 270% more compared to my current 12-month fix which ends in a few weeks. If that’s to be the norm for all households, then we have a disaster looming for the poorest in society.
I’ve extensively investigated air source heat pumps over the last 2 years and although an installation would reduce the carbon footprint of my space heating by a huge 70%, the on-cost of the electricity consumed may be 40% greater than gas. The quoted prices for the installation range from £16k to £20k with only a miserly £5k government grant. I’ve concluded that the money is better spent helping my son insulate and improve his 1930’s house.
I’ve improved the energy efficiency of my own Victorian house by doing the work myself and have achieved a 30% reduction in gas demand over the last 2 years. I’m now hampered by the disruption of living with the work needed, resistance to change of the external appearance by my LA (I live in a conservation area) and the very limited financial help from HMG.
I have ideas on how the huge costs and technical challenges might be undertaken using QE to train auditors and installers and would be very interested in discussing them with Mike if Richard can put me in touch.
I also appreciate that as QE is not understood by any key decision-makers, these ideas (or similar) will take huge efforts to gain traction, but during a crisis of energy procurement/pricing plus the over-arching climate crisis we need the sort of economic thinking which FDR took from Keynes to create the New Green Deal
Oh, for enlightened thinking in any corridor or office of power….
Mike – mail me if you are happy to be linked
Replying to Jim Osborne: “Wouldn’t such a state monopsony in energy purchase be able to set the contractual prices for wind energy which apply limits to the levels of profit, thus reducing the importance of a wind energy tax?”
To set “contractual prices” would require that the state monopoly possed the information needed to know the levelised cost of energy (LCOE) from wind, in a given location (windier locations have lower LCOEs) and at a given point in time (wind costs change due to raw input costs and due to tech evolution). Thing is – you don’t really need the state monopoly to “set prices” since these are automatically delivered on completion of an auction. (Even the dim-witted Germans worked that out by 2017). This assumes that there are a number of companies taking part in an auction – my monitoring of auctions suggests that this is the case, & they are pretty competitive.
So one could have a state owned energy company with monopoly power (bit like Bank of England – only it can issue £s) to buy energy. The input prices would be the array of generators supplying power to the system (all fixed). The output price would be a basket wholesale price that would hardly move at all. The decision could then be made: array of retail companies – or just one? I favour the “just one”. Indeed, I favour the status quo ante: area electricity board, lottery selecting board members and the area board responsible for network and billing. All state owned. Work well before, could work again – albeit with direct citizen involvement.
Myself and a European Commission economist have proposed this, with the energy company funded by the central bank. We have a paper. Happy to supply to those interested.
I would be interested
How would small scale community owned energy projects fit into this Mike? If large scale offshore wind can produce electricity at (say) 5p/Kwh how can a community energy company compete if it can produce (and make a profit to reinvest in the local community) at 17p/kwh?
I have quoted 17p/kwh because that was the required price to allow a community wind project I was involved in 5 years ago to be viable (and that was the combined Feed in Tariff/Export tariff rate at the time).
Of course output varies from one site to another and fluctuates daily but wind modelling is based on annual averages and financial modelling is based on probabilities derived from wind data. In this case I do wonder whether an auction based system is the right way to go. A tax system depends on reliable accounting and full financial transparency; it seems to me that if these principles are applied to energy pricing then case by case contractual prices might be negotiable. That would shift the burden from tax authorities to the energy authority. Is this possible?