We must cut our overheated energy costs

With the Budget looming, we need a plan to help the squeezed middle without adding a penny to the deficit. One way is to overhaul the myriad of tariffs and subsidies, introduced by Labour, that hike up energy bills. Effectively a tax on consumers, they are hurting hard-pressed families and businesses – and represent flawed environmental priorities. Take the Renewables Obligation, the subsidy consumers pay energy companies to produce solar, wind and hydro-electric power. Figures from Ofgem, the energy regulator, reveal that the cost of the subsidy doubled in five years, and now stands at over £2 billion. Next year, the subsidy is the equivalent of hitting each household for £77, up from £40 three years ago. To add insult to injury, the subsidy funnels money to the least-efficient energy sources. The justification has always been that this backdoor tax would make renewable energy sources more efficient over time. Yet, measured by “load factor” (the extent to which a plant operates at maximum capacity), onshore wind and hydro-electric power have got less efficient in the last three years, and solar no better. It is a similar story with feed-in-tariffs (FITs), another subsidy paid by consumers to encourage smaller business and homes to generate their own renewable energy from solar panels, wind turbines and anaerobic digestion of sewage. While a small minority have cashed in on solar subsidies, projections by the Department for Energy and Climate Change forecast that the resulting annual FITs bill, picked up by the consumer, will quadruple in the next three years – hitting £790 million – despite their miserable track record on energy efficiency. Even with Coalition efforts to rein in solar subsidies, the total cost of FITs over the next four years will still be £1 billion more than originally budgeted for. Given that fuel poverty has tripled since 2003, this toxic mix of tariffs and subsidies will hit low and middle-income families the hardest. So what should we do instead? The debate on climate change has shifted. While some still dispute the science, there is a consensus that we need to forge an environmental policy that makes wider economic sense. The Coalition has made key changes in the right direction. Eight new nuclear power stations are planned. Equally, measures to promote home insulation and energy efficiency will reduce carbon consumption and save money.