Households to Face Higher Energy Bills as Green Subsidy Costs Rise

British households are set to shoulder billions more in energy costs following new disclosures on green subsidy funding. The Office for Budget Responsibility has revealed that an additional £1 billion per year will be added to household bills to finance Ed Miliband’s latest renewables auction, known as allocation round 7. This expenditure was not explicitly outlined in Chancellor Rachel Reeves’s recent Budget. Instead, it was disclosed in a footnote to the OBR’s Fiscal Outlook report released the same day.

The contracts for difference scheme, under which subsidies for wind, solar, and nuclear projects are funded through levies on household bills, is forecast to see its costs rise from £2.3 billion in 2024 to £4.6 billion by 2031. Treasury estimates have not included a further £5 billion required for allocation round 7 and subsequent rounds. The OBR has clarified that outcomes for allocation round 7 are expected in early 2026 and that up to £1 billion per year may be added to costs between 2028 and 2033.

The Department of Energy Security and Net Zero, led by Mr Miliband, has verified that allocation round 7 will increase costs under the contracts for difference scheme. The department argues the funding is necessary to support renewables and reduce reliance on gas. However, they also indicated the subsidy was omitted from the Budget because the Treasury only incorporates policies already announced. Specific details about allocation round 7 are expected to be confirmed in January.

Households, in addition to funding contracts for difference, also face increased obligations through the capacity market levy. This separate subsidy ensures generators are paid to operate gas-fired power stations and hydroelectric dams when output from renewable sources is low. Treasury projections suggest the cost of the capacity market levy will increase from £1.6 billion in 2025 to approximately £4.6 billion by 2031.

The OBR report coincides with recent revelations of yet another £1 billion set to be added to bills from January to support the construction of the Sizewell C nuclear power station. This levy will be collected through a new regulated asset base system.

Shadow energy secretary Claire Coutinho has criticised the rising bills, noting that Ed Miliband promised to cut household energy costs by £300, but since his tenure began, bills have increased by £200. Critics argue that current policies risk burdening households with high energy costs for decades in pursuit of net zero targets, and some have called for the forthcoming auction to be cancelled to avoid further increases.