UW Manifesto: Be honest with public about funding net zero

In the latest focus on individual pledges within Utility Week’s Election 2019 Manifesto, David Blackman examines why it is crucial that the next government initiates a national conversation on funding net zero. He asks how much of the burden utility bills can be expected to shoulder.

Energy prices were back on the general election agenda this week as shadow chancellor of the exchequer John McDonnell promised that a Labour government would slash household bills, including those for utilities.

One of the factors that has helped to keep energy bills high has been the mechanisms the government put in place to shift the burden of subsidising new low carbon generation from the taxpayer to customers’ bills.

And the system of billpayer-subsidised levies, which was established under the coalition government, has stimulated considerable investment in renewable power by providing the stable prices that have bolstered investor confidence in what were until recently barely proven technologies. The Contracts for Difference (CfD) auction process alone has delivered nearly 20GW of offshore wind capacity.

In its general election manifesto, Utility Week has called for a national conversation on the costs of reaching next zero. This would include whether consumers would prefer to fund some of the long-term investment to reach a greener future through taxes rather than bills.

Josh Burke, a fellow at the London School of Economics Grantham Institute, sees increasing concerns across the political spectrum with the impact of these funding mechanisms on the level of consumers’ bills

A report, issued by the Conservative supporting thinktank Onward last week, estimated that the total price of low carbon subsidies would work out at £370 per household if the costs were not shared with business customers.

On the Labour side meanwhile, the GMB union’s general secretary Tim Roache recently compared the existing support regime for low-carbon generation with the controversial flat rate local government tax introduced by Margaret Thatcher’s administration in 1990.

He said: “We support a progressive tax system that funds the transition to net zero ending the poll tax that the poorest pay through their energy bills.”

Burke says: “Most people would see that as quite a regressive means of funding , moving those things into general taxation would be a good thing. Most parties and certainly Labour would accept that and the levy on consumer bills is a regressive policy.”

The manifestos provide few clues for the future of the CfD process, which is unsurprising given its technical nature.

But Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, sees a broad direction of travel towards greater support from the public purse for decarbonisation. As an example, he cites the Conservatives’ manifesto commitment to plough £9.2 billion into energy efficiency measures.

Labour meanwhile have committed a total of £250 billion of investment in low carbon through its proposed National Infrastructure Bank.

And the party’s pledge to renationalise the energy networks and the “big six” suppliers inevitably means that taxpayers would be on the hook for new investment in upgrading the energy network.

Onward’s report claims that the government has signalled that it sees the CfD as a transitional mechanism,and that it would prefer renewables to be delivered through ‘subsidy-free market-based approaches.

But Marshall is sceptical that there is much appetite for moving away from the CfD regime, given its recent success in delivering offshore wind and the amount of interest it has sparked across the world.

“I can’t see anyone taking seriously the idea of getting rid of the CfD.”

This, along with other questions about how the net-zero journey is funded, must be top of the in-tray for the next government.