20150725_R4

Source: BBC Radio 4: Today Programme

URL: N/A

Date: 25/07/2015

Event: Ed Davey: lower wholesale energy prices mean going green is "more affordable"

Credit: BBC Radio 4

People:

• Ed Davey: Former UK Secretary of State for Energy and Climate Change
• Richard Howard: Head of Energy & Environment, Policy Exchange
• John Humphrys: Presenter, BBC Radio 4: Today Programme

John Humphrys: There is broad agreement across the political parties that climate change is real and deeply worrying, and that we should get as much of our energy from renewable sources as possible and cut back on our energy consumption. Where there is less agreement is on how much we should spend doing all that. This government's planning to spend less - its already announced it's cutting subsidies for wind and solar energy, and yesterday it announced it was scrapping the so-called Green Deal, which was introduced by the Coalition government to encourage energy efficiency. Ed Davey was the minister responsible for making it work, and he is with me. So is Richard Howard of the think tank Policy Exchange, and you've just been doing some calculations on all of this sort of thing, um, Richard, and what's your calc- what did they tell you about the sort of savings that are going to be made, over the coming years?

Richard Howard: Well, I'll start by telling you a bit about the research we've been doing - we've basically been looking at energy bills and looking at the breakdown of bills and why energy bills have been increasing, and what we found is that over the last five years, essentially policy costs and the costs of bringing energy to people's homes, network costs, have increased by £120 and - over that period -

John Humphrys: And you're saying that's directly attributable to subsidies.

Richard Howard: Well, those are two areas of costs that are controlled by government, so the policy costs - what I'm talking about there is subsidies to low-carbon energy and also the schemes - there's a scheme known as ECO, which is the scheme that provides grants to fuel-poor homes - and if you add all of those things up, they've increased by £60 over the last five years and now cost effectively £90 per household and, in terms of an average energy bill, £90 of that is going on policy costs.

John Humphrys: And is that rising or falling?

Richard Howard: It has been rising - it's risen by £60 over the last five years, as I said, and our projections show that those policy costs could increase by a further £100 or £120 over the next six years to 2020 - those are actually straight from government forecasts. And so those costs are increasing substantially, adding to people's bills.

John Humphrys: And does that take into account the announcements we've had, over the past weeks, about cuts in subsidies?

Richard Howard: Well, so one of the things is - it's quite complicated to explain - there is a budget for all of the low-carbon subsidies, that subsidies that are paid for, essentially, through levies on people's bills, there is a cap that's in place for those subsidies. And the analysis that we've done has shown - and some analysis that the government has done itself has shown - that that cap is now likely to be breached, and by as much as £1.5 billion per year by 2020. So that's one of the things that stands out and tells you we really need to start getting these subsidies under control - that's why the government is looking to take the steps that it's looking at, at the moment.

John Humphrys: Ed Davey? Do you accept those figures?

Ed Davey: Well, I accept the figures but I don't accept the interpretation. First of all, we've had huge success on renewable electricity, under the Coalition. We saw renewable electricity treble, huge increase in offshore wind, onshore wind, solar, biomass and so on. And actually it was really good value for money, because we've got to tackle climate change, as you said at the beginning of your introduction. But interestingly, when we set this budget, the prices - electricity prices in 2020 - because its all about affordability - the electricity prices were forecast to be much higher than they're going to be now, because wholesale prices have come down. So actually, going green is going to be more affordable for the economy, taken whole, not less affordable, and the Chancellor's very keen, isn't he, of saying "We've got to fix the roof when the sun's shining", when he thinks about the fiscal deficit. He should be saying the same thing when he thinks about climate change. It's a real threat, we've got to tackle it and we can afford to do that now with renewable energy costs tumbling.

John Humphrys: But looking at the costs - put aside, for the moment, the effect on climate change - because wholesale prices, of electricity, of fuel, of oil and all the rest of it, has come down, have come down so dramatically, the argument could be: "Well our - the costs of heating our homes and filling our cars and all the rest of it would be a lot cheaper if it weren't for these subsidies", and that's a perfectly reasonable argument for hard-pressed people to make, isn't it.

Ed Davey: Yes, but it's good that the prices have come down -

John Humphrys: Of course.

Ed Davey: - because people are saving money.

John Humphrys: Yeah, but they'd be saving more money, is my point.

Ed Davey: Yes, but we set this budget when wholesale prices were a lot higher, so the net cost of energy for people isn't going to be lower, over the next few years. Therefore, it gives you a chance to make these crucial investments that we have to make if we're going to tackle climate change. And we need to make those investments in energy efficiency. And I'm really proud of the record that saw energy consumption really reduce over the last five years. So, for example, we're wasting much less energy - one million homes were insulated, under the Coalition. These are successes that are now at risk, with the policies we're seeing from the Conservative government.

John Humphrys: But you'd accept that the Green Deal failed.

Ed Davey: Well, the Green Deal, yes it failed in some areas but it succeeded in others. But it's not just that - I mean, if you look at the Policy Exchange report -

John Humphrys: Well, just before you leave that, I mean the Green Deal, 200,000 households a year were supposed to take up the deal, and in fact it was 15,000 over 2 years. So, massive drop.

Ed Davey: Actually, it was many more that took up the first half of the deal, because the Green Deal had two elements - it had assessing your house, so you could decide what - how to make your house warmer, then it had a credit package. Your figures were for the credit package. If you looked at the way that people took these assessment, so they knew where to invest to make their homes warmer, and to save energy and to save carbon, hundreds of thousands took up that part. So that's why it's a bit more of a mixed picture than some people suggest. Interestingly, the Policy Exchange report's quite right in one level, it's saying that we need to invest in the cheapest green measures. The cheapest green measure for producing electricity is onshore wind. And what have the Conservatives done? They're killing onshore wind. So that means to go green under the Conservatives is going to be far more expensive.

John Humphrys: Do you accept that, Richard Howard? First of all that it is the cheapest method and that they are killing it?

Richard Howard: In the report that we've done we have compared all the different subsidy schemes that have brought forward by the government and one of the things we stress very strongly is: energy efficiency is the cheapest and way to both cut carbon and cut people's bills, so we really should be doing as much as we can on energy efficiency.

John Humphrys: So maybe we shouldn't have chopped the Green Deal?

Richard Howard: Well, I mean, I think the Green Deal is an interesting story in itself, it - there have been areas of success and, as Ed has said, half a million people went and took out one of these assessments, so they got the information on what to do and how to improve their own home. Actually, interestingly, many of those people just did it off their own back - they funded the improvements themselves and actually the Green Deal model didn't work for everyone. It was interesting conceptually but in terms of how it was actually put into practice it didn't work for everyone. If you're a home owner it probably didn't make sense because you could borrow money more cheaply off your own mortgage. So -

John Humphrys: But given all that, if we are becoming more energy-efficient, why isn't the usage falling? Why aren't we using less?

Richard Howard: We are using less.

John Humphrys: Quite a lot less?

Ed Davey: Yeah, yeah.

Richard Howard: Quite a bit less, yeah. You can see a marked reduction in the last few years.

Ed Davey: In the last year alone, Britain's energy intensity fell by 5% - that's, that's huge.

John Humphrys: And that's not because its getting warmer, because we're -

Ed Davey: It's temperature-adjusted.

John Humphrys: That's temperature -

Ed Davey: What really worries me is not just the fact that we're running back on climate change policies, which is critical for the future, but I'm worried about Britain's energy security, if we keep seeing these policies from the Conservatives. If you're taking wind off the table, if you're taking solar off the table, if you're undermining energy efficiency -

John Humphrys: Well, they're not taking it off the table, are they, I mean they're saying subsidies have to come down.

Ed Davey: Well - and I would reduce subsidies, I don't believe in keeping subsidies any longer than you need to.

John Humphrys: So they're continuing your policy.

Ed Davey: Well, um, what they're doing is they're reducing them far too quickly and not based on any evidence. You take these decisions based on evidence, and they're not doing that.

John Humphrys: Is that right - no evidence for that, Richard Howard?

Richard Howard: Well, I think in the report we've put out, we've tried to provide some of that evidence and we've shown, for example, and for the subsidies for rooftop solar, that they are too high.

John Humphrys: The subsidies are too high.

Richard Howard: The roof- the subsidies for rooftop solar are too high.

Ed Davey: The progression [?] mechanism brings them down.

Richard Howard: It does, but -

Ed Davey: But coming back to the energy security issue, because if you're taking some of these things, reducing their expansion if you like, and what sense are you - where are you going to produce the electricity from? We know nuclear is going to take a long time to come on the bars, so you're going to have to go to gas. Now gas, of course, has carbon but moreover in the gas market, for the moment, people aren't building gas power stations unless we support them with subsidies, through something called the capacity market, which I introduced, so we're going into real irony. The Tories will have to increase subsidies for carbon generating electricity through gas plants to offset the decline in renewable electricity we're going to see from their policies.

John Humphrys: All right then, but we haven't got long left - but very broad picture, Richard Howard, does your research show the policy of creating more and more renewable energy is being threatened by what the government is doing?

Richard Howard: I think it's moving in a different direction, we need to get -

John Humphrys: That's "Yes".

Richard Howard: I'm supportive of renewables but we do need to get these subsidies down. And the government actually some of the interpretation in the last few days of what the government has done has actually been wrong. Some of these subsidies the government has said they are going to look at and review, and that's been interpreted as those subsidies having been taken away and straight away - that's some of the representation of this is wrong. So the government does need to look at these subsidies and look at wherever it can make cuts.

John Humphrys: Ten seconds on that, Ed Davey.

Ed Davey: Well, the Treasury's now running energy policy. And Britain was a global leader, and with these unevidenced policies I think it's going to go backwards, and that's bad for our economy, bad for energy security.

John Humphrys: Thank you both, Ed Davey and Richard Howard.