The proposed hydrogen levy will now be charged to gas shippers rather than energy suppliers, Nesta has reported, after the original design attracted opposition. The change is set out in the research body's report Cheaper electricity, fairer bills, published on 4 December 2024, which examines how social and environmental levies are distributed across household gas and electricity bills1.
"The proposal was changed following a backlash and the levy will now apply to gas shippers rather than energy suppliers"
The report states that policy costs, a set of levies on household energy bills, currently raise £5.9 billion per year and account for 11% of a typical household's total energy bill. They are not spread evenly: policy costs make up 16% of a typical electricity bill but only 5.5% of a typical gas bill1. Among the schemes named are the Energy Company Obligation, the Warm Home Discount, the Renewables Obligation, Feed-in Tariffs and the Green Gas Levy. Nesta notes the Renewables Obligation has been closed to new projects since 2017 and was replaced by Contracts for Difference, and that the Green Gas Levy rate was reduced in February 20231.
The report gives a picture of what a typical dual-fuel household pays. Such a household currently pays roughly the same for gas (£833) as for electricity (£884), even though it uses more than four times more gas than electricity on an equivalent per-kWh basis, because the gas price sets the electricity price 97% of the time1.
Nesta modelled two options for reform. Removing all levies from electricity would cut bills for every household in Britain, but would cost the Exchequer around £4.8 billion a year, which the report says would need to be made up by tax rises; most household archetypes would see reductions of £150 to £4001. Rebalancing all levies from electricity onto gas would be revenue-neutral for the Exchequer and would reduce bills by £230 to £400 per year on average for the 4.5 million households that do not use gas heating, including around 960,000 households that often suffer acute fuel poverty. Bills for the 22.5 million gas-using households would rise by between £15 and £100 per year, with cheaper electricity offsetting most of the increase1.
| Measure | Effect reported |
|---|---|
| Policy costs as share of a typical electricity bill | 16% |
| Policy costs as share of a typical gas bill | 5.5% |
| Annual levy revenue | £5.9 billion |
| Households not using gas heating | 4.5 million |
| Households on gas | 22.5 million |
Why it matters for households
Levies are a fixed part of the unit price a household pays, so where they sit decides whether a home that runs on electricity or one that runs on gas carries more of the cost. Nesta reports that levies are regressive in design: poorer households spend a greater share of their income on them than wealthier ones, with the share ranging between 0.5% and 1.5% across Ofgem's consumer archetypes1. For a household weighing up a heat pump or another electric heating system, the gap between electricity and gas unit costs is a direct factor in running costs, and the report describes that gap as a major barrier to adopting low-carbon heating1. For homes off the gas grid, which already rely on electricity or other fuels, the levy balance is the whole of the question rather than part of it.
What happens next
The report states the Energy Intensive Industries Support Levy is expected to apply to bills from April 2025, and that a scheme due to close to new entrants in 2025 has been extended to 20281. No date has been reported for the hydrogen levy taking effect on gas shippers.
Sources1 cited
- Cheaper electricity, fairer bills | Nesta, nesta.org.uk