Chancellor makes budget pledge to remove 75% of Renewables Obligation scheme costs for three years
UK Chancellor Rachel Reeves has pledged measures to reduce consumer energy bills, including moving certain costs associated with renewable energy support mechanisms into general taxation.
In her budget today (26 November), the politician said the government will remove 75% of the cost of the Renewables Obligation (RO) scheme for the next three years, as well as scrapping the Energy Company Obligation efficiency scheme.
These steps are together said to reduce the average annual household energy bill by £150 from next April.
Energy UK chief executive Dhara Vyas said the support for billpayers is “long overdue”.
“The energy industry has for some time called for action to remove policy costs and bring down bills. So we warmly welcome the announcement today from the Chancellor, which will give customers some respite from the high energy costs that far too many households have struggled with over recent years.
“Investing in clean power will protect customers from volatile prices and lead to more stable bills in the future. But people are struggling now, and reducing bills for all customers is an important first step.
“We now hope to see further progress toward both tackling the current record levels of customer debt and introducing better targeted support for those most in need.”
RenewableUK deputy chief executive Jane Cooper welcomed the move to push certain energy policy costs into general taxation.
“It’s fairer, as it’s based on people’s ability to pay, so families on low incomes will benefit most,” she said.
“We also welcome (the Chancellor’s) moves to make electricity cheaper for industry, as this will reduce costs for the energy sector’s supply chain and accelerate electrification, both of which will, in turn, reduce electricity costs, benefitting billpayers.”
Cooper added a budget commitment to recruit an additional 350 planning officers is a “timely intervention” that will “enable us to roll out vital new clean energy capacity significantly faster”.
“It’s exciting to see the government approving two new freeports in Scotland and Wales. These are the latest examples of the renewable energy sector revitalising ports across the country by building centres of excellence. We also welcome the announcement of investment in renewable energy projects in Cornwall through a new local Industrial Growth Fund,” she said.
Solar Energy UK chief executive Chris Hewett added: “Reform of the Renewables Obligation is both a welcome and expected move by the Chancellor. Together with the rising proportion of power coming from cheap solar and other renewable sources, plus reform to the electricity markets, we can expect bills to fall further in the coming years.”
Vattenfall director of public and regulatory affairs Lisa Christie said: “Energy costs are at the forefront of consumers’ minds. Measures to minimise the cost of living will be welcomed by bill-payers, but it’s equally important that we maintain the pace and ambition of rebuilding our critical national energy infrastructure.
“This is the only way to guarantee energy security, deliver stable bills for British households, and strengthen our industrial base to compete globally.”
Cornwall Insight principal consultant Craig Lowrey said it is important to be “realistic” about what the measures achieve.
“Shifting some levies around does not remove the costs of running and decarbonising our energy system, it simply changes how they’re paid for.
“While it may take the sting out of energy bills right now, these costs will need to be picked up elsewhere. Moving them to general taxation may mean those paying more tax shoulder a bigger share, so you could say it spreads the burden. But for most households, it won’t make a huge difference to what’s in their pocket.
“The long-term solution is a low carbon system that delivers stability and protects us from the volatility of fossil fuel prices. That takes serious upfront investment and an honest conversation about how we share those costs fairly.”
Aurora Energy Research advisory project leader Marten Ford added while the measures offer some “immediate relief” on bills, they “fall short of structural change to permanently lower costs”.
“Funding most RO costs delivers meaningful savings – around 8% of the average annual electricity bill – but this support is only confirmed for the next three years. Other steps, such as ending the Energy Company Obligation, provide only modest reductions.
“Delivering sustained savings for consumers as the GB system evolves over the next decade will require a more fundamental rethink of both market and support design and cost recovery.
“This is particularly true if the government is to systematically encourage the electrification of the UK economy.”
