May 23, 2012

Families’ electricity bills to rise by up to £200 to ensure firms profit on their nuclear reactors and wind farms

By Sean Poulter, Consumer Affairs Editor, This is Money, 23 May 2012

Electricity bills could rise by up to £200 a year for each home under plans to guarantee high prices for firms building nuclear power stations and wind farms.

Details emerged yesterday as the Government unveiled a revolution in the way the nation produces its electricity.

Consumers will have to pay more to ensure companies make a profit on their multi-billion-pound investment.

In a separate move, strict controls will be placed on the building of power stations fired by coal, oil or gas.

The moves are designed to ensure the Government meets its promise to cut carbon dioxide – CO2 – emissions to satisfy draconian EU targets.

However, the news has alarmed consumer groups who are worried about the impact on struggling householders.

At the same time, green campaigners are furious that the UK is backing nuclear power while other wealthy nations such as Germany are turning their backs on it.

Even some major industry players believe the new system of guarantees is too complex and could generate billions in extra costs.

The Coalition insists the so-called Electricity Market Reform regime is necessary to ensure the lights stay on beyond 2020.

Ministers argue that guaranteeing high prices is the only way to convince private firms to spend the £110billion needed to build a new electricity supply network over the next 20 years.

An official impact assessment shows the proposals will drive up the typical electricity bill from an average of £573 a year in 2011-2015 to around £670 by 2026-2030 – a rise of £97.

But this appears to underplay the true extent of the rise, which some estimates suggest could hit £200.

Last night, Energy Secretary Ed Davey admitted on Channel 4 News that the estimate of an extra £100 per year on bills was just a ‘well-informed guess’.

He justified the plan with a claim that bills would rise even faster and higher if nothing was done.

This warning is based on assuming that Britain would become more reliant on gas imports, which the Government claims will see big price rises in the next 20 years.

However, this is highly contentious as the discovery of shale gas in the UK and around the world could lead to a glut of cheap gas.

Mr Davey has painted a Doomsday scenario of black-outs and rising prices to justify the proposals outlined in a draft Energy Bill.

‘Leaving the electricity market as it is would not be in the national interest,’ he said.

‘If we don’t secure investment, we could see the lights going out, consumers hit by spiralling prices and dangerous climate change.

‘These reforms will ensure we can keep the lights on, bills down and the air clean. By reforming the market, we can ensure security of supply for the long term.’

The Government has pledged to reduce the UK’s CO2 emissions by 34 per cent by 2020 and by at least 80 per cent by 2050.

Only a dramatic shift to wind, solar, nuclear and wave power can achieve this.

Audrey Gallacher, director of energy at the official customer body, Consumer Focus, had a warning for ministers.

She said: ‘With a hefty price tag attached to the changes, consumers need to be assured that not a penny of the funding that comes out of their bills will be wasted.

‘The Government must guarantee that any subsidies and rate of return to suppliers are fair, and not overly generous at consumers’ expense.’

German power giant RWE npower recently abandoned a project to build two nuclear reactors in the UK, one on Anglesey and another in Gloucestershire.

Volker Beckers, its UK chief executive, warned that the Government’s proposals are unnecessarily complex and wasteful.

Under the new regime, ministers will be allowed to commission a power firm to build a generator if it is worried about shortages. The firm would then recoup the cost through bills.

However, Mr Beckers warned this state intervention would ‘make the British energy sector highly inefficient, costing consumers many billions in unnecessary cost’.

Another warning came from Guy Newey, head of energy at the Policy Exchange think-tank.

He said: ‘The proposals force bill-payers to take a huge, one-sided gamble on high gas prices. If these do not materialise, the unnecessary cost to consumers could be in the tens of billions.’

John Sauven, executive director of Greenpeace UK, called official support for nuclear power ‘misguided’ and said it was time to drop ‘this hugely expensive pipe dream’.

URL to article: