Net zero less likely to bring down energy bills, warns auditor
KPMG said it will become 'harder to argue' that the switch to renewables can lower bills in the near-term if such trends continue.
Annual household energy bills will fall by 7pc on average from July 1 after Ofgem committed to lowering its price cap to £1,720, largely as a result of the seasonal reduction in the demand for gas, which sent prices lower.
It means that the cost of subsidies offered to renewable generators – which are funded by taxes on bills – are becoming an increasing proportion of the cost of household energy.
Such levies now account for up to 25pc of energy bills, according to Dieter Helm, professor of energy economics at Oxford University.
Simon Virley, the head of energy at KPMG UK, said:'Today's decrease in the energy price cap is the result of falling gas prices and will bring costs back to where they were at the end of last year. This is good news for households still struggling with the cost of living.
'But with upward pressures on the cost of renewables, due to supply chain and other constraints, and if gas prices continue to fall, it will be harder to argue that switching from gas to renewables will help bring energy bills down in the near-term.'
Mr Virley's comments reflect the recent turmoil in the renewables industry caused by Danish developer Orsted, which decided to abandon its massive Hornsea 4 wind farm project off the coast of Yorkshire due to rising costs.
Orsted won the contract for Hornsea 4 only last year with a guaranteed minimum price of £85 per megawatt hour, which was higher than any other recent award.
The renewables sector has been hit hard by inflation, including rising costs for steel and for the ships, cables and other equipment needed to build offshore wind farms.
Mr Virley said that in the longer term the shift to renewables still made sense 'to remove our dependence on volatile global fossil fuel markets'.
Other analysts say the shift to renewables, and the levies that support them, is costing consumers too much.
A separate report, issued last week by Watt-Logic energy consultancy, found that green levies added £18bn to bills last year, a sum that will reach £20bn by 2030.
Analyst Kathryn Porter said: 'My analysis indicates that had Britain continued with its legacy gas-based power system in the period since 2006, consumers would have been almost £220bn better off, even taking into account the impact of the gas crisis.'
At the centre of such debates is the ever-changing price of natural gas. Its price is set partly by trading at the so-called TTF Hub in the Netherlands – a virtual point in the pipeline network where gas is bought and sold.
In 2021, TTF prices – the benchmark for Europe – were hovering around €20 (£17). They soared to €340 at the peak of the energy crisis caused by the Ukraine invasion and have since fallen back sharply.
Memories of this huge but short-lived rise – and the huge costs it imposed on personal and public finances – have fuelled the continuing political pressure for an accelerated shift to renewables.
Over the last year gas prices have hovered between €31 and €58 – much lower than 2022 but not back to 2021 levels. This remains important for power bills because about a third of UK electricity is generated by gas-fired power stations.
However power bills contain several other components besides gas costs. Other factors include network costs – covering transmission infrastructure – and green levies.
As the amount of renewables on the network has grown so the size of those green levies has increased – both in cost and as a proportion of bills.
This trend is set to continue, directly linked to the growing number of wind and solar farms added to the system.
Ed Miliband, the Energy Secretary, repeated his calls to replace gas with renewables.
He said: 'The fall in energy bills is welcome news for families across the country and will mean that working people keep more of their money in the coming months.
'But the only way we get long-term energy security is through our mission for cheap, clean home-grown power.
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