Customers face rising energy bills due to increase in subsidy scheme costs

The COVID-19 lockdown and the resulting reduction in energy demand have seen the costs of supporting renewable subsidies increase both in terms of £/MWh and overall expected spend for 2020-21.

Research from Cornwall Insight’s ‘Third-Party Charges forecast’ highlights that as a result of the COVID-19 lockdown, the total cost of renewable subsidy schemes* is forecast to rise above £10bn in 2020-21. The £/MWh impact on suppliers is expected to be around 5.4% higher due to COVID-19 related effects and top £40/MWh in total.

Subsidy scheme costs

Lee Drummee, Analyst at Cornwall Insight, said:

“With the cost of renewable subsidy schemes and other policy aspects now accounting for over 30% of the typical electricity bill, these rising costs will ultimately be recouped from consumer bills.

“COVID-19 has cut energy demand and lowered wholesale energy prices; these two effects have resulted in an increase in per unit costs of energy policy subsidies at just the time many consumers are struggling with their bills.

“The impacts of these rising costs are expected to be higher in the first two quarters of the year (April – September 2020). It will lessen in the second half of the year as Cornwall Insight’s forecasts suggest market conditions will begin to return to some form of normality.

“Several measures have been put in place to buffer domestic suppliers and consumers from this sharp rise in third-party charges. However, the combination of all the costs together will mean the increase will nevertheless be felt.

“As you would expect, lower wholesale prices go some way to offset higher policy costs on the electricity bill. However, domestic customers will have been consuming more over the lockdown period, and therefore they will be paying a larger share of such costs than before.”


Notes to Editors

*Contracts for Difference (CfD), Feed-in Tariff (FiT) and Renewables Obligation (RO)