Green subsidies allow energy suppliers to move over to a more renewables-heavy fuel mix without impacting their bottom line. But what are they, and how do they work?
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These green subsidies are in place to pay for a number of different types of government initiatives. These are as follows:
The RO (Renewables Obligation)
The government launched this initiative to force the energy companies in the UK to source a larger proportion of their energy from green sources.
Feed-in tariffs allow you to sell any excess energy that you produce back to the main power grid. This energy is produced from renewable sources that people have installed in their home.
ECO (Energy Company Obligation)
This initiative is designed to help low-income households install energy saving measures such as insulation.
Green subsidies have been put in place in order to reduce the UK’s national carbon footprint. They are designed to encourage energy companies to move from carbon-based energy sources to renewable sources.
The long term aim of these measures is to reduce carbon emissions by 80% from the levels that were reached in 1990. The government wants to achieve this by 2050.
This requires us to move away from sources like fossil fuels and towards renewable sources like solar and wind power. Some green energy suppliers already provide 100% renewable power. Subsidies help them, and help others get to that stage.
To achieve this goal energy companies have had to spend a lot of money, they aim to make this money back by passing the costs onto you as a consumer.
There is no simple answer to this question. The amount that green energy subsidies cost the consumer is a fairly hotly debated topic.
Ofgem stated that in 2012 the green subsidies added about 8% to the average UK household’s energy bill. That was the equivalent to around £107 per year.
The DECC (Department for Energy and Climate Change) stated that the figure was closer to 9%. This is the equivalent of £112 per year on gas and electricity.
The government say that if we didn’t have put these green subsidies in place, we would all end up paying more for energy in the long term because the wholesale prices on fossil fuels are going up.
By paying these levies we also help to lower the UK’s carbon footprint, meaning that we are helping to maintain the environment we live in. We are also helping lower income households afford their energy so that they aren’t left struggling with their gas and electricity bills.