The Sunday Times - UK (2022-04-24)

(Antfer) #1

12 The Sunday Times April 24, 2022


MONEY


suppliers or electricity generating com-
panies which claim subsidies for meeting
their green energy targets.
Sometimes an energy company can be
both a supplier and generator, for exam-
ple British Gas, EDF and Scottish Power,
or sometimes the generator will be a
separate company, such as Orsted,

Europe’s largest wind farm operator.
We asked the Treasury, Ofgem, and the
department for Business, Energy &
Industrial Strategy exactly how much of
the money was spent. The government
said it was unable to share information at
this time because different levies work in
different ways. We also asked the

National Audit Office, the government’s
spending watchdog, but it said it had not
analysed how this money has been used.

Renewable obligation
The biggest green levy on your bill comes
from what is known as the renewable
obligation, which started in 2002. It adds
about £75 to the typical annual bill. The
overall cost last year was about £6.5 bil-
lion.
This government directive tells energy
firms such as British Gas, EDF and Eon to
generate or source an increasing amount
of green energy from renewable sources.
If they do they get a certificate. These
certificates cost them money, but they
can recoup that through energy bills.
These certificates are tradable com-
modities that can be purchased by other
companies seeking to meet their obliga-
tions without having to generate or
source green energy themselves.
Trading these certificates has become
a way for firms to offer cheap green tariffs
without ever having to generate any
green power. Sometimes our green taxes
fund certificates for power stations based
overseas.
The renewable obligation ended in
2017 but companies that have already
invested in renewable technology under
the scheme are entitled to continue
receiving payments for the duration of
their contracts, and so the taxes still
appear on our bills.

Feed-in tariffs
This scheme was launched in 2010 to
encourage households to invest in solar
energy generation. These payments add
about £17.50 to the average energy bill
and cost £1.5 billion in total last year.
The idea was that homeowners who
invested in solar panels on their proper-
ties would be able to sell the energy they
generated back to the grid. Solar panels
are expensive, so they needed an incen-
tive, which came in the form of a promise
that they would always get a minimum
rate for their power, known as a feed-in
tariff. The rate was guaranteed to be infla-
tion-beating for up to 25 years.
Some argue that the original scheme
was too generous, because early adopt-
ers received multiple times what it costs
to generate solar power today.
The payments shrank over the years
for later adopters and the scheme ended
for new customers in 2019.
Those who signed up in the early years
are, however, still entitled to the pay-
ments they originally agreed to plus infla-
tionary rises for the duration of their con-
tacts.
Many are actually losing out, though —
big time — because their energy has
become increasingly valuable. For exam-

Measure Annual Annual impact
cost on bills
Renewable £6.5 bn £75
Obligation
Feed-in-tariff £1.5 bn £ 1 7. 5 0
Contracts for
Difference £0.3 bn 29p

Correct as of April 22, 1pm
Source: National Grid

Source: Cornwall Insight, Octopus Energy

Where our energy comes from

How a typical dual fuel bill breaks down

Source: Ofgem

Green levy costs

ENERGY BILL BREAKDOWN


34.99%
28.57%
15.57%
12.95%
2.73%
2.2%
2.16%
0.42%
0.4%
0%
0%

Wind
Gas
Solar
Nuclear
Dutch imports
Belgian imports
Biomass
Other
Hydro
Coal
Oil

£683
£500
£367
£302

£94
£44
£18

Wholesale
Network
Operating
Environmental
and social
VAT
Other
Proit

bundles of energy sold at auction, for
example a certain amount of wind power.
If households pay below the guaran-
teed level, for example if wholesale
prices fall sharply, the state-owned Low
Carbon Contracts Company (LCCC),
which acts as the intermediate body
between generators and your supplier,
pays the generator for the difference.
If the price of electricity is higher than
the set price, the generators such as
Orsted pay the suppliers via LCCC. At
present, the market price for electricity is
much higher than the cost of generating
green power, so generators are paying
money back to suppliers, again via the
LCCC.
The scheme added only 29p to house-
hold bills last year because they soared
way above the cost of generating the
energy. As the market price for energy is
now higher than the set price, suppliers
are likely to get money back over the
course of this year under the scheme.
Octopus estimates that up to £1 billion
will be returned to the LCCC. This will
then be given to suppliers.
But that does not mean it will automat-
ically find its way back to households
because it is up to individual suppliers to
hand back this money to customers.
Ofgem said it is helping to create the
right infrastructure for net zero to thrive.
Net zero is when the amount of green-
house gas produced and the amount
removed from the atmosphere is the
same, ie when there is no net negative
effect.
It said the obligations that are often
termed as environmental or green levies
are all underpinned by legislation that
places obligations on both the energy
companies and the administrators of the
scheme. It has programmes to ensure
that beneficiaries and energy firms are
regularly audited and “where non-com-
pliance is found we look to take compli-
ance or enforcement action”.

What’s the solution?
Many campaigners want the green levies
to be scrapped. Halfon, the MP for Har-
low, said: “It’s an absolute no-brainer
that the government should either
remove these levies completely, or intro-
duce a downward escalator so that when
international oil prices rise, the levies
would be reduced accordingly. Removing
these pressures from working people
would be an important way of helping
them with the cost of living.”
The government cannot walk away
from contracts agreed over 15 to 25 years,
however. Analysts say one other option is
to shift the taxes from our bills to the gen-
eral pot of taxation, while increasing
other levies.
Joe Tetlow, the senior political adviser
at Green Alliance, a think tank, said:
“Green levies are key to bringing down
consumer bills and getting the UK off Rus-
sian gas. Scrapping them is not an option
but we can pay for them out of general
taxation, which would win widespread
support both among Conservative MPs
and bill payers.”
Raising £8 billion a year would not be
easy: it is equivalent to adding 1p to basic
rate income tax and 2p to the higher rate.

What you can do
You cannot avoid paying the green levies
but you can avoid some of the sneaky tac-
tics used by suppliers to make you pay
more.
Make sure you are paying the correct
amount. If you pay by direct debit and
have built up a large credit balance, ask
your supplier to pay the money back and
cut your monthly bills.
Suppliers can increase the amount
taken from your account but the change
must reflect higher prices or increased
usage and you must be notified of the
increase beforehand, usually at least ten
days before the payment is taken.
Also, stick with your supplier’s default
tariff, usually called the standard varia-
ble tariff (SVT). Although the amount a
supplier can charge on this tariff has
increased recently with the raising of the
price cap this month, you may be offered
the opportunity to fix it if you are willing
to pay more. Fixed rate deals are not sub-
ject to the price cap.
SVTs can be hard to find because sup-
pliers call them by different names. Eon
calls its SVT the EnergyPlan, Ovo calls it
Simpler Energy, Octopus has Flexible
Octopus and So Energy has So Flex.

The big


green hole


L


ast year households and
businesses paid more than
£8 billion in green taxes that
were added to energy bills.
Campaigners have been calling
for these levies, which bump up
domestic energy costs by about
£153 a year, to be scrapped.
But where does the money
actually go once it is collected
by the energy firms? What kind of green
schemes is this cash paying for?
To start with you have to distinguish
between what is actually a green tax, and
what is a measure to help low-income
households, because the two get lumped
together.
Of the £153, about £93 is specifically
green. The remaining £60 is used to fund
the Warm Home Discount — money given
directly to poorer households in winter —
and the Energy Company Obligation, a
scheme that helps pay for poorer house-
holds to insulate their homes.
The average £93 payment comes to a
total of £8.3 billion which is collected
from our bills, according to the energy
analyst Cornwall Insight.
This is specifically for three taxes: the
renewable obligation, feed-in tariffs and
contracts-for-difference.
They were introduced respectively 20,
12 and five years ago with the aim of
encouraging the industry to decarbonise,
but they have become a “millstone
around people’s necks” according to
Robert Halfon, a Conservative politician.
He wants them to be scrapped to ease the
cost of living crisis, but this idea was
ruled out by the prime minister, Boris
Johnson, on Friday.

Following the money —
where does it go?
Once the green taxes are collected by the
energy companies via our direct debits
and cheques, most of the money is
handed directly to the regulator Ofgem or
state-owned bodies that administer a
specific scheme. It is then paid out to

We pay £153 a year in eco energy taxes, but it’s not clear where it all goes, says Ali Hussain


Suppliers have refused to
say how much of their
customers’ cash they are
sitting on. There are
concerns that this money is
being used to prop up
unprofitable businesses and
there have been calls for this
money to be ring-fenced.
Households who pay a fixed
amount each month by
direct debit tend to build up
a credit balance during the

summer, when they use less
energy, and reduce it over
the winter, when they use
more. There should be a zero
balance over a year.
Only Octopus out of the
big five suppliers disclosed
that it had £85 million of
customers’ cash, but said
customers were still in
overall deficit of
£670 million. British Gas
disclosed it had about

£300 million of customer
cash in February. Eon, EDF
and Scottish Power declined
to provide details. Ovo said
that in February customers
owed it more money than it
owed them.
Ofgem said it would
investigate reports that
energy suppliers have been
increasing direct debits “by
more than is necessary,” as
part of a review of the sector.

SUPPLIERS


SITTING ON


YOUR CASH


ple customers of EDF are paid 1.5p per
kWh sold to the grid, but EDF then sells it
on for 28p per kWh.

Contracts for difference
This scheme replaced the renewable
obligation five years ago. It guarantees
suppliers a set price for the green elec-
tricity they generate. These prices can be
set on 15-year contracts and are agreed on

Is your pension advice biased?


Advisers who act as salesmen
for financial firms should be
banned from offering advice
on defined benefit pension
transfers, the UK
Shareholders Association
(UKSA) has said.
The group, representing
the interests of 14,000
individual investors wants a
ban after an adviser changed
a recommendation when a
customer said she wanted to
move her pension to a
cheaper rival, to which the
adviser’s firm was not tied.
Anyone wishing to transfer

a defined benefit pension,
which guarantees an income
for life, is required to seek
advice if their pot is deemed
to be worth £30,000 or more.
This is to ensure that savers
know what they are giving up.
A saver cannot move their
money without approval
from a regulated adviser. But
some advisers are approving
transfers only if the customer
switches to a firm with which
they have a relationship.
The UKSA claims this is a
conflict of interest — and it
can cost savers huge sums
because advice has to be paid
for regardless of whether or

not a transfer is approved.
Julie Thorpe, 54, from St
Albans, was given approval to
transfer her £960,000
pension by Drewberry, based
in London and Brighton, The
Sunday Times reported in
February. It changed its mind
when Thorpe said she wanted
to move to the DIY platform
Interactive Investor, so she
and her husband Chris could
manage the money
themselves and cut costs.
Drewberry said it
approved the transfer on the
basis that Thorpe would get
annual advice from Quilter,
the product provider to

which Drewberry is tied. It
reversed its decision to
approve the transfer, but still
charged Thorpe £8,800.
The UKSA has now written
to the Financial Conduct
Authority (FCA) to voice its
dismay that tied agents are
allowed to advise on pension
transfers. Advice should be
“independent and free of
conflict”, it said adding that
tied advisers had the same
incentives to approve
transfers as those who gave
British Steel workers poor
pension advice.
The FCA said it plans to
respond to the UKSA letter.

Ali Hussain

Savers race for NS&I bonds


Savers have deposited
£173 million in National
Savings and Investments’
green bonds since the interest
rate doubled to 1.3 per cent in
February.
This is up from the
£102.2 million that was
deposited in the four months
after the three-year bonds
were launched in October,
paying 0.65 per cent — but
still way below what other
NS&I bonds have raised.
The government-backed
bank is hugely popular with
savers because 100 per cent

of deposits are guaranteed,
instead of just the £85,000
per institution that is
protected under the Financial
Services Compensation
Scheme. NS&I holds
£206.4 billion of savers
money but is limited in the
amount of funds it can raise
because of the effect it could
have on its open-market
competitors.
In 2015 NS&I launched
market-leading bonds that
attracted £1.15 billion of
deposits in two days.
The three-year green
bonds, which will fund
investments in renewable

energy and transport and
were the brainchild of the
chancellor, Rishi Sunak, have
not been anything like as
popular, mainly because of
the rate.
Savers can earn 2.29 per
cent on a three-year bond
from the Wrexham-based

bank SmartSave. The best
one-year fixed bond rate is
1.96 per cent from Shawbrook
Bank and the best two-year
fix is 2.21 per cent from
SmartSave. The best easy-
access rate is 1.5 per cent
from Chase, the app-based
bank from JP Morgan. NS&I
pays 0.5 per cent on its easy-
access Direct Saver accounts.
NS&I said the green savings
bonds had “performed well
in the context of the green
savings market, and NS&I has
a responsibility to balance the
interests of the customer and
the taxpayer, while also not
disrupting the market”.

George Nixon

0.65%


The rate on the
NS&I bonds at
launch in October
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