The Renewables Obligation


On every gas and electricity bill that UK households receive, there is a hidden tax. A tax of more than 8%. It's called the Renewables Obligation. Energy companies are obligated – that is, they are forced by the government under pain of fines and imprisonment – to spend a chunk of their revenues developing and installing non-fossil energy production systems. That means they are forced to pay for things like wind factories, photo-electric technology and wave power, whether or not they think these generation methods have the slightest value, either to themselves or the nation.

Like all political efforts to make companies pay for things, the government's plan does not work. The energy companies do not pay for these generation technologies. The cost does not come out of their profits, or their shareholders' dividends. It comes from their customers, naturally. All of us who use energy in the home – and there may be one or two completely self-sufficient households in the UK, but the other 28 million or so do have to buy in gas or electricity – end up paying. We pay this premium on our bills so that our energy companies can subsidise wind farmers.

Or maybe we should call them subsidy farmers, because the fact is that these alternative energy sources are far from covering their own costs. None of those noisy, unsightly turbines that are marching across the country's most beautiful hill country (since that is where the wind is) would exist at all if it were not for the subsidy. Except perhaps the one on David Cameron's house.

Just think about it. In ordinary garden soil, there are trace elements that are actually quite valuable. You might even have a gram or two of gold lurking under your lawn. What good fortune: you could be sitting on a gold mine. Except that these things are not valuable at all, because the cost of extracting them would be enormous in relation to the tiny quantities that you could isolate. You could get the excavators in, and boil up all the soil in your garden to find them, sure enough. But it wouldn't be worth the effort. You could spend £250,000 on digging the holes and refining your soil, and maybe end up with just a few grams of precious metals worth maybe £100. It's a no-brainer, isn't it?

So why do we think it is any better to spend more on non-fossil generation than the value it brings to our energy network? Well, there may be a strategic benefit from having diversity, so we are not dependent on Russian oil and gas, for example. That's a plausible argument, though it still may not justify paying over the odds for that diversity. Then there's the argument that we want to develop new 'green' energy technology and be first in the field. No, we don't. We're better to buy technology from the world's best producers. We don't make phones for ourselves in the garage, we buy them from Apple. And in any event, the first people into any market aren't usually the people who make money from it. Usually it is the second entrants, who see the idea but improve the way it is designed and marketed. We'd be better and cheaper letting other countries develop green technologies, then capitalise on their efforts.

And what is true of energy is true of all the other things that governments subsidise. If it was your money, you would buy the cheapest. So why does government force us to pay for the most expensive?