Unreliable: Wind farms in the North Sea — a lot of money for a poor return
In private, the best-informed analysts now agree that Britain's environmental policies have put the country on track to have the world's most expensive electricity. This is mainly because our competitors are almost certain to choose cheaper routes to emissions reductions, such as natural gas, or to shun emissions reductions altogether. The Coalition's own Annual Energy Statement for 2010 concedes that by the year 2020, nearly one third of the average domestic electricity bill will consist of green energy charges imposed by law (£160 out of £512, or 31 per cent). Business will be hit even harder, with environmental charges for the average medium-sized non-domestic user accounting for £404,000 out of £1.224 million, or 33 per cent.
If other economies are more cautious in loading burdens upon their wealth creators, Britain will be a less attractive place in which to deploy capital, with obvious implications: high green charges on domestic bills might be merely questionable when household income is both stable and generous, but they would surely be indefensible in the context of lower wages and unemployment.
Government takes comfort from estimates that energy-saving policies, for example to encourage the use of better fridges, will reduce annual domestic electricity bills by £187 in 2020, and by £128,000 for non-domestic consumers. Such savings are desirable, but they are also extremely uncertain, even improbable. And if, as seems likely, these savings do not materialise, then consumers will be looking at very testing bills made still more trying by environmental policies. They may not like what they see.
Public awareness of these concerns has been inhibited since the costs of environmental legislation tend to be moderate in the short run, with the pain of the full impact only likely to be felt in years beyond the political horizon. However, it is clear that the impact of subsidies is already economically significant even if it is not yet psychologically salient. Britain is obtaining only a fraction of its electricity from renewable sources, just under 7 per cent in 2009-2010. The wholesale price of that quantity of electricity would be approximately £1bn, but the Renewables Obligation, a complex subsidy paid to generators but drawn indirectly from bills, adds a further £1.4bn, more than doubling the cost to the British consumer.
In its first three months, from July to September 2010, the Feed-in Tariff for microgeneration (guaranteed prices to support, among other things, solar photovoltaics [PV] and wind turbines up to a capacity of five megawatt) has produced roughly 0.005 per cent of UK annual demand, at a cost of £2.6m. This generous support has encouraged the construction of an installed capacity of microgenerators totalling 59 MW. To put that in perspective, peak load in Britain on a cold winter's afternoon is nearly 59,000 MW.
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