Household electricity bills will soar by 30 per cent to pay for “green” measures being announced this week by Chris Huhne, the Energy Secretary, according to experts.
Costly new incentives to encourage energy companies to invest in renewable power sources such as wind farms will put an extra £160 a year on the average household bill over the next 20 years.
The huge rise is on top of drastic increases in bills being faced already by consumers. Last Friday British Gas, which posted profits of £742million last year, announced gas price rises of 18 per cent, which followed Scottish Power saying it would increase rises of 10 to 15 per cent.
Mr Huhne is expected to announce on Tuesday that energy companies, such as Centrica and EDF, will get a fixed price for electricity generated from nuclear power and wind farms, which will be higher than the market price.
The financial incentives will be funded by consumers, who will see their electricity bills rise by 30 per cent over the next 20 years from an average of £493 per year to £655 per year.
Experts predicted that single pensioners will be the hardest hit by the changes, because power bills represent a higher proportion of their income than for any other group.
The price-rise calculation does not include the effect of power companies’ recent charging announcements which have seen electricity bills soar to their highest ever levels for millions of customers.
Dr Michael Pollitt and Laura Platchkov, experts from the University of Cambridge and the Energy Policy Research Group, said in a report: “A 47pc increase in electricity unit costs, envisaged under the electricity market reform, would send UK electricity prices towards being the highest in the European Union.”
Their research for the Consumers’ Association concluded that the worst hit sector of society will be single pensioners.
The costly package due to be outlined in full this week is designed to reassure generation companies that Britain is an attractive place to build nuclear power stations and wind farms.
Mr Huhne admitted in an interview with The Sunday Telegraph last year that there was no money available for direct state subsidies for a new generation of nuclear plants, so this week’s announcement sets out how consumers will shoulder the cost of incentives directly.
The changes to be outlined by Mr Huhne this week will hand billions of pounds in subsidies to the energy companies and kick-start a construction programme creating thousands of jobs.
But combined with further green taxes, such as the European emissions trading scheme, and upgrades to Britain’s national grid the measures could see Britain’s gas and electricity bills rise by 50 per cent – or £500 per average household bill – according to Ofgem, the energy regulator.
It is understood the Government will not set the exact level of the subsidies on Tuesday. But it will confirm the mechanism is likely to be a “contract for difference” model which effectively imposes a surcharge on bills to make market prices attractive for new investment in wind and nuclear power.
But opponents claim wind farms are blighting the countryside while failing to deliver a reliable supply of electricity.
It is also understood that Mr Huhne’s long-awaited announcement on energy policy will delay a separate subsidy for power station owners, known as capacity payments, while there is further consultation.
It is understood there have been disagreements in government over whether the incentive should be given to all technologies, including coal and gas, or just low-carbon ones like nuclear and wind farms.
The Government last night insisted that leaving the electricity system as it is would be more costly in the long run. It believes switching to nuclear and wind makes sense because European Union-led taxes on gas and coal power generation will increase the costs of fossil fuel generation.
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