UK to see increased energy bills due to Covid-19-related subsidy costs

Yoana Cholteeva 8 July 2020 (Last Updated July 8th, 2020 12:51)

The Covid-19 lockdown and decreased energy demand have resulted in increased costs to supporting renewable subsidies over the UK, both in terms of cost per megawatt-hour (£/MWh), and overall expected spend for 2020-21, according to research from energy analyst Cornwall Insight.

UK to see increased energy bills due to Covid-19-related subsidy costs
The £/MWh impact on suppliers is also expected to be approximately 5.4% higher and reach £40/MWh in total. Source: Kenueone

The Covid-19 lockdown and decreased energy demand have resulted in increased costs to supporting renewable subsidies over the UK, both in terms of cost per megawatt-hour (£/MWh), and overall expected spend for 2020-21, according to research from energy analyst Cornwall Insight.

The ‘Third-Party Charges forecast’ report predicts a rise in the total cost of renewable subsidy schemes, above £10bn in 2020-21, as a result of the Covid-19 lockdown.

The £/MWh impact on suppliers is also expected to be approximately 5.4% higher and reach £40/MWh in total.

Cornwall Insight analyst Lee Drummee 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.”