The Scottish government or the electricity industry should absorb any rising costs to consumer bills caused by renewable targets, according to the consumer energy watchdog.
With the UK government expected to publish its plans for renewable energy in the coming days, Energywatch echoed concerns about yet more pressure on electricity bills following recent hikes from suppliers on the back of the high oil price.
Graham Kerr, Energywatch spokesman, said: “Precautions should be taken to make sure that Scottish consumers aren’t faced with higher premiums. Whether that comes from the government or industry, there are lots of ways that this issue could be tackled.”
It comes after Paul Golby, the chief executive of E.ON, said he believed the UK’s target of 35% to 40% of electricity from renewable sources by 2020 would raise bills by about £400 a year. If this is true – although the renewables industry expressed doubts – it would apply at least as much in Scotland, where targets are 50%.
Both the Scottish and UK governments have stimulated wind farms and other renewable technologies by introducing a system known as the renewables obligation (RO), which requires electricity suppliers to get a proportion of their power from renewable sources each year. To prove that they are meeting the RO targets, which are earmarked to steadily rise to 20% by 2020, suppliers have to buy certificates issued to the renewables companies for each unit of power they produce.
This effective subsidy, which raises the cost of supplying renewable energy, has seen consumer bills rise 7% since the system was introduced, according to Ofgem.
Although the supply companies will not have to buy certificates up to the higher level of the overall government renewables targets, they will still need to buy renewable electricity to cover the shortfall if they are to stay on track.
In other words, a supplier might only need certificates up to 20% by 2020 to meet the RO, but in Scotland they would be expected to deliver 50% of their electricity renewably. With wind electricity currently more expensive than fossil fuel electricity even without the certificates, this too suggests more expensive bills to consumers if they have to shoulder the cost.
If, as some industry sources predict, the ROs are raised to 40% in the government plan to fall into line with EU targets, it points to higher costs still. With big industry players like Scottish Power and Scottish and Southern Energy now investing heavily in wind farms, some sources question whether they should receive the subsidies.
Jason Ormiston, chief executive of Scottish Renewables, which represents the industry, said he was not convinced that wind power would remain more expensive than the fossil fuel equivalent through to 2020, nor that consumer bills would rise as a result.
“It’s likely that the cost of generating electricity from fossil fuel power stations is going to increase in the UK.
They will have to face costs such as installing clean coal technology, carbon sequestration or there might be a tax on the carbon they produce. It’s difficult to say that increased renewables will increase the cost of electricity,” Ormiston said.
By Steven Vass, Deputy Business Editor
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