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2019

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Bang for your buck: consumer cost of policies

Nick Palmer
Nick Palmer

Ofgem published its State of the Market 2019 Report on 3 October, providing a comprehensive overview of the state of competition in the retail and wholesale energy markets. It also assessed how well vulnerable customers are protected, the performance of network companies and the progress of decarbonisation.

Using third-party analysis, Ofgem presented the relative costs to the consumer of various types of decarbonisation policies from 2010-2018. The acceleration of decarbonisation required to meet net zero by 2050 means that the cost for the consumer is something that will need great consideration by the government. In this Chart of the Week, we consider the cost for consumers of decarbonisation polices.

Figure 1’s y-axis shows how much bang for your buck each type of policy offered over the 2010-2018 period, in £ per tonne of carbon saved. The x-axis shows how much carbon was saved by these policies over the period, in millions of tonnes (Mt).

The chart shows that demand-side policies, such as energy efficiency measures, were the most cost effective for consumers, at around £21 per tonne of carbon dioxide saved, based on BEIS estimates of their impacts. However, while demand-side policies were the cheapest per tonne of carbon saved, they were only responsible for around 20 Mt saved.

Carbon prices were the next cheapest, costing £31 per tonne of carbon saved. In total, carbon prices were responsible for around 320 Mt saved, the largest amount of any type of decarbonisation policy. However, Ofgem noted that, given that there is limited coal plant left on the system, the cost effectiveness of the carbon price may diminish over time.

Air quality directives cost £46 per tonne saved and were responsible for around 50 Mt saved. Large-scale renewables subsidies, such as the Renewables Obligation, cost £99 per tonne saved and were responsible for around 220 Mt saved. Small-scale renewables subsidies, such as the Feed-in Tariff, were by far the least cost effective, costing consumers £322 per tonne saved. Additionally, they only saved around 20 Mt of carbon over the period.

In Ofgem Chair Martin Cave’s launch speech for the report, one of the major themes he covered was the net zero target. The inclusion of this policy cost comparison in the report further suggest that Ofgem is seeking to take a greater role in the UK’s decarbonisation.

I wrote about the State of the Market 2019 Report in more detail in Energy Spectrum 686. For more information about subscribing, please contact n.palmer@cornwall-insight.com

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