What you may not know is that about 8 percent of your energy bill is actually a levy used to fund energy-efficiency schemes such as the Energy Company Obligation (ECO) and Local Authority Flex scheme (LA Flex).
When you read a statement like this, you automatically assume that we should be opposed to a levy, especially during times when energy costs seem to be spiralling out of control. Some may argue why there is a levy at all. And question whether these schemes should be funded directly by energy company profits, reducing shareholder pay-outs. And also, tax and VAT reductions. Surely, it’s better for the economy?
While this is debatable and certainly causing a discussion between parties in parliament, we take a look at how your energy bill is made up of costs and taxes and illustrate how these energy-reduction schemes have made a significant difference in the UK.
What costs are included in your bill?
Energy bills are made up of several costs from suppliers, tax, and environmental obligations such as:
This makes up around a third of your energy bill. Suppliers buy energy from electricity generators and gas producers on the wholesale market. This price fluctuates and is one of the main factors in the rising costs of living.
An energy network is a method of how gas and electricity reach your home. This is usually pipes and cables maintained by a network provider. They charge a supplier to use the network.
Social and environmental obligations
Otherwise known as the green levy, but more importantly, this also helps the vulnerable such as pensioners to upgrade and insulate their homes, saving them hundreds in overall fuel costs. This is also a way of paying back the cash rebates that every household received in May 2022.
This also covers the Warm Home Discount scheme, which is a one-off discount on electricity bills and is designed to support those who are in receipt of the Guarantee Credit element of Pension Credit or are on a low income.
For businesses that operate in certain sectors, there is Climate Change Levy (CCL). This is a tax to encourage businesses to use less energy and insulate their properties.
Other direct costs
This one should probably be a little bit more transparent. OFGEM explains that this is for meter installations and costs towards Smart Metering.
Money is also paid to brokers and 3rd party comparison websites.
Supplier operational cost and profit
Suppliers are private companies and thus have costs and seek to make a profit.
Taxes and VAT
Like everything, TAX and VAT are added to the bill which equates to a larger percentage than the 8% Green Levy.
Why is there a dispute about the Green Levy?
The wholesale price is the main reason for the hike in cost. This is what the energy providers pay for gas and electricity and then pass the cost over to the consumers.
With this in mind, the Government must figure out a plan to help consumers afford their energy supply.
Some ministers believe that money should be diverted from social and environmental schemes and put into a financial help package.
However, business leaders believe financial help will be temporary if prices continue to rise and we must think of the bigger picture. The fresh investment must be made available to continue the success of the eco schemes and help the able-to-pay market install renewable products and insulation.
So has money from the Green Levy had an impact socially?
There’s no doubt that schemes such as ECO and the Green Homes Voucher have had a major impact, especially on people who are not able to pay for more efficient heating. Unfortunately, some of the schemes didn’t have the infrastructure in place to succeed, but new iterations such as boiler upgrades to renewable tech may have a better chance.
It’s believed that when prices rise again in October 2022, properties with an EPC rating below C will pay £916 more than efficient homes.
This is why the industry is pushing for reform on offerings to the able-to-pay market. This could be done through no-interest finance backed by the Government. Why not?
Here are a few quick statistics on the Energy Company Obligation (ECO Scheme):
- ECO alone has delivered 3.1m insulation, heating, and other measures to over 2.3m households.
- ECO is primarily focused on the most vulnerable in our society – delivering estimated average cost savings of £290 per year for those households.
- It is expected that the total cost savings delivered by ECO3, the current iteration of the
the scheme, is worth £8.253b.
- The Insulation Assurance Authority (IAA) stated in their latest report that retrofitted properties have collectively saved £6.2 billion.
- Statistics from The National Energy Action Charity show England, Wales, Scotland, and Northern Ireland are on their way to hitting fuel poverty targets.
Has the Green Levy had an impact Environmentally?
ECO is a powerful driver in reducing household emissions, The IAA calculates on the 6.2 million
properties that have used the schemes, have resulted in a reduction of over 26.2 million tonnes of carbon emissions.
Reducing fuel bills collectively by £6.2 billion.
Schemes such as the Energy Company Obligation have had a profound effect on the UK to deliver its net zero targets. In 2020 the UK saw a 15% drop in a Gas generation thanks to the rise of renewable technology and a drop in demand for fossil fuel. The new iteration ECO4 and boiler upgrade scheme will see a focus on renewables* 
How many homes in the UK have a poor EPC Rating?
According to the Office of National Statistics, three-fifths of assessed homes in England and Wales have low energy efficiency ratings.
In the Opinions and Lifestyle Survey (OPN) less than a fifth of people in Great Britain were considering improving their home’s energy efficiency, according to data collected between 22 September and 3 October 2021.
Of those who were not considering any improvements, the most common reason for this was believing their home was already efficient enough, followed by not owning their own home and changes costing too much money.
In fact, Landlords now have to legally bring their housing stock up to Band C by 2025 or face hefty fines – you can read about the landlord energy ratings here
So, should we scrap the Green Levy?
Absolutely not. Following a record rise in the cost of gas on the global market, households face an enormous increase in their energy bills, fuelling a cost-of-living crisis. It could lead to millions of vulnerable households rationing their energy, increasing unnecessary excess mortality during winter and the burden on the NHS when it is already under extreme strain due to the pandemic.
This is why, it has never been more important that we deliver schemes like ECO, through the Green Levy, to help tackle fuel poverty and take a preventative approach to lowering householder’s energy bills, with energy-saving measures.
We all know that the Government needs to find the money from somewhere and you can judge by the statistics as to whether you think the green levy works or not.
For more information of statistics and reports – please consider the links below,
*Analysis: UK is now halfway to meeting its ‘net-zero emissions’ target – Carbon Brief
** Age of the property is the biggest single factor in energy efficiency of homes – Office for National Statistics (ons.gov.uk)
***Household Energy Efficiency Statistical Release (publishing.service.gov.uk)