Net zero could push energy bills up by £120 a year

Household energy bills are set to rise by nearly £120 a year to fund the development of hydrogen gas, under the Government’s net zero plans.

No 10 is backing the production of low-carbon hydrogen in a scheme expected to cost £3.5 billion a year between 2030 and 2040.

Costs could be added on to household bills from 2025 on top of subsidies for other green energy such as wind farms, under provisions in the new Energy Bill.

The plan, which is part of the Government's efforts to meet its target of net zero carbon emissions by 2050, is facing a backlash from as many as 50 MPs and is expected to be challenged in the House of Commons.

The extra levy could add £118 to annual household bills - a 10 per cent increase on dual fuel bills, according to new analysis from centre-Right think tank Onward.

It would apply despite the fact hydrogen is expected to play only a limited role in home heating.

The Government expects heat pumps to be the main replacement for gas boilers, with hydrogen mostly used as an energy source for industry.

The news comes as water bills are expected to rise significantly to pay for resolving the sewage crisis.

There is also broader concern about the burden of net zero costs on households.

Earlier this month, Citizens Advice warned that the average £15,000 cost of retrofitting homes to go green would be unmanageable for most homeowners.

Conservative backbenchers are expected to table amendments to the Energy Bill in a bid to force Rishi Sunak, the Prime Minister, into a U-turn.

Some could also support a Labour amendment that would strip ministers of the power to apply the levy to household bills.

Craig Mackinlay, chairman of the Net Zero Scrutiny Group, said many Tory MPs were opposed to No 10’s “socialist energy agenda”.

“The thought of more levies to try and pick winners that are unproven and in my view unsound just continues what we’ve seen in the whole field of energy policy, which seems more reminiscent of the 1950s Soviet Union that we used to laugh at,” he said.

“We need markets back in control of energy policy because governments are making a complete mess of it. I sense there is concern about all these kinds of policies among colleagues.”

Sir John Redwood, a former policy chief under Margaret Thatcher, added: “The last thing we want is another government-imposed hike in the price of energy.

“UK households are suffering a hit to their living standards and business is being driven out of Britain. We need a rollback of taxes and subsidies on energy and we need a big expansion of domestic capacity.

“There are a number of Conservative MPs who do not think the policy embedded in the Bill is one that’s good for the country or one that’s going to work because it’s more of the same - more interference and higher taxes.”

Onward has proposed funding the development of hydrogen with carbon taxes on heavy industry.

“It would be unfair to ask households that won't benefit from hydrogen directly to pay for it,” said Jack Richardson, head of energy and climate at Onward. “The Government should think again.”

More than 40 per cent of households would not be willing to pay any levy to fund hydrogen production, polling for Onward found, with a further quarter willing to pay only up to £10.

“Even if the economic case for the levy stacks up, the political and moral case is weak,” Onward said.

The Government is backing the development of 10GW of low-carbon hydrogen production capacity by 2030, which it plans to pay for through a similar funding scheme as the onshore wind industry.

The proposals would mean hydrogen developers are offered a guaranteed price for the gas, with the Government paying any difference above the market price developers receive. The energy bill levy would fund the difference.

The gas, which can be made using electricity or with methane and carbon capture, could help heavy industry and transport cut emissions.

The Government will consult on the levy before a final decision on where it will fall.

Energy Bill 'seeks to make people cold and poor'

Jacob Rees-Mogg, a former business secretary, said: “I am against anything that increases energy prices.

“Cheap energy is essential for economic growth and prosperity. The Energy Bill as currently worded seeks to make people cold and poor.”

A decision has yet to be made about hydrogen's use as a 100 per cent replacement for natural gas in home boilers, with controversy over its safety and high costs.

The costs are predicted to be at least 70 per cent higher than gas prices, which could limit its widespread uptake. 

Plans to blend up to 20 per cent hydrogen into the gas grid, which the Government is expected to decide on this year, could add another £100 to annual bills, according to recent analysis by the Regulatory Assistance Project.

Backers of the hydrogen industry fear that further delays to the Energy Bill could threaten the development of the industry and risk investment moving to the US and the EU.

Joe Biden, the US president, has promised $7 billion (£5.6 billion) to fund clean hydrogen hubs in the US. 

The EU has approved more than €13 billion (£11.3 billion) in state aid backing for projects across the continent.

A Department for Energy Security and Net Zero spokesman said: “Our plans to power up Britain will ensure the availability of cleaner, cheaper and more secure energy sources – including hydrogen – which will help to make sure people’s energy bills are affordable.

“That priority is at the heart of our work in developing the hydrogen levy. 

“We will consult on the detailed design before introducing the levy, to ensure it fits these key criteria while also providing investors and developers with the confidence to invest in low-carbon hydrogen production projects.”