New green levy to drive up household energy bills

Labour is set to load a new green levy on to household energy bills to help subsidise hundreds of millions of pounds for clean hydrogen projects. The gas shipper obligation (GSO), which will be introduced in 2027, will initially add up to £7.10 to average gas and electricity bills. The money raised will be used to fund an initial round of 10 green hydrogen schemes, aiding Labour’s efforts to replace fossil fuels with clean power . Another 27 projects have already been shortlisted, meaning the levy’s costs will keep rising to fund them. The GSO will also join a raft of other green levies being added to power bills , threatening Andy Burnham’s pledge to tackle the cost of living crisis by reducing household energy costs. The Prime Minister has vowed to save families £45 a year by removing VAT from electricity bills but these savings are set to be wiped out by Ofgem’s price cap, which will rise by £60 from October. Britain’s biggest energy companies have frequently blamed green levies as one of the main factors driving bills higher. The GSO will start off small but its costs are expected to surge as green hydrogen production scales up to industrial levels. It will be imposed on companies moving natural gas through the UK distribution system, which will then be able to recoup the costs from domestic and commercial energy bills. A report from the Joint Office of Gas Transporters, an industry body, said: “The gas shipper obligation costs will ultimately be passed to consumers based upon their consumption so will have an effect on existing gas consumers and will entail a large number of consumers incurring this additional cost.” The GSO money will fund the first “hydrogen allocation round (HAR1)”, under which an initial 10 trial schemes will get about £150m for projects to generate 115 megawatts (MW) worth of green hydrogen. This is produced by splitting water into hydrogen and oxygen using renewable electricity . The hydrogen produced can then be used as a clean fuel. The subsidy will be rapidly scaled up over successive allocation rounds in the same way that wind and solar have been expanded using a similar subsidy system. Officials are already preparing to expand the GSO subsidy schemes to help fund more projects in the coming years. In a second hydrogen allocation round (HAR2), households will help bankroll 27 projects with a capacity of 875MW. Government documents show that subsequent subsidy rounds could increase this to 10 gigawatts (GW) – roughly equating to 10 of the UK’s existing nuclear power stations. The Department for Energy Security and Net Zero (DESNZ) has not yet published any estimates of the impact of hydrogen subsidies on bills after HAR1 and refused to answer detailed questions on the programme. However, industry experts suggest that hydrogen subsidies will eventually add around £40 to average annual domestic bills if the Government decides to commission the full 10GW of capacity. The GSO will be in addition to the raft of other levies that collectively make up about 30pc of average domestic bills. The Office for Budget Responsibility has warned that the green levies added to energy bills will rise from £10.5bn in 2025 to £18.5bn in 2030. This is in addition to the sharp rises in standing charges needed to cover the estimated £110bn cost of upgrading UK grid networks by 2031. David Turver, an analyst, said that electricity system prices – meaning the cost of subsidies and grid upgrades – were set to rise sharply over the next five years. He added: “Green hydrogen is hugely expensive and there is no market for it. “It is particularly perverse to subsidise something for which there is no demand and in the process further add to already high energy bills.” The Low Carbon Contracts Company, which will collect the levy, described the GSO as “designed to incentivise investment in clean hydrogen production and usage”. Richard Tice, the Reform UK energy spokesman, said: “Another day, another energy levy being added on consumer bills to pay for more speculative net-zero-related dreams. Reform will stop all this and remove these taxes and levies to slash bills.” A DESNZ spokesman said: “Energy is an everyday essential and needs to be affordable for everyone, which is why we have cut VAT on electricity bills to give families breathing space. “We will keep looking at what more we can do to protect households.”