Switching to green power could add £29 billion a year to household bills

Wind turbines
Wind turbines

Switching to green power could add £29 billion a year to household bills, analysis suggests.

And the net zero investment could see the poorest households £700 worse-off, according to the Resolution Foundation analysis.

Cheap green energy for homes and electric cars has been promised on the basis of low interest rates to pay for the upfront investments in renewables and grid expansion, the foundation said.

But the costs of borrowing have spiked since the energy crisis and could remain high, increasing costs for the net zero transition, which are paid through household bills.

If today’s higher rates of around nine per cent continue, it could add £29 billion a year to household energy bills in 2050, the foundation found.

That would be an average rise of £400 in 2050 compared to 2019, before the energy crisis. Energy bills would still be lower than 2023, because of recent price shocks.

The costs would hit poorer households disproportionately, mostly because they are less likely to benefit from lower transport costs through owning an electric vehicle.

The poorest fifth of households could face an increase of £700 compared to 2019 prices, a rise of 40 per cent.

“Interest rates could remain high and that could cause issues, both in terms of the pace of building things, but also the implications on household finances as well,” said Jonathan Marshall, senior economist at the Resolution Foundation.

Switching to green power for homes and cars to meet the UK’s net zero by 2050 target is expected to require a four-fold increase in investment over the next decade to build new wind and solar farms, and expand the grid to account for electric cars and heat pumps.

The Government offers new wind farms a guaranteed price for their electricity, which has dropped from £164 per megawatt hour in 2014, to just £51 in 2022.

But last year it failed to secure any new offshore wind projects after the industry said the prices it offered were too low, given rising costs of finance.

“Cleaner energy could be cheaper energy, if interest rates return to the low levels seen during the 2010s,” said Mr Marshall. “But we can’t count on that being the case. If interest rates stay high, energy costs will rise rather than fall in the years ahead.”

The report calls for the Government to focus on building the cheapest renewables, in particular onshore wind, to keep costs down.

It also says the Government should consider a social tariff to help the poorest households pay for energy costs in the future, and look at shifting some of the costs of the energy transition into general taxation rather than bills.

“Now is the time for planning on how we deliver the energy investment surge while protecting lower income households, with a greater focus on price reduction in contracts, price protection for vulnerable households, and rethinking the role of the state as an investor,” Mr Marshall said.