Rising energy bills are “reasonable” to pay for wind farms and nuclear power stations after the Coalition struck a new deal on gas and electricity, the chairman of the Energy Committee has said.
Tim Yeo, the Conservative MP leading the Energy Committee, said it is sensible to ask households and businesses to pay £7.6 billion a year within eight years towards the cost of building “greener” power stations as prices are “going to go up no matter what”.
According to official Department of Energy figures, bills will go up by an estimated £178 a year by 2030 under the Government’s green and fuel poverty policies, with the contribution to nuclear and renewables making up £95 by 2020.
Ed Davey, the Energy Secretary, said the cost will be “under £100” over the next eight years and insisted that in the long run the policies would save people money in comparison with relying too heavily on gas.
“When I talk to the energy companies they say three things: they say the biggest impact for energy bills is gas prices – over 50 per cent of your bill, whether its electricity or gas – is because of high gas prices,” he told the BBC.
“The second thing that is putting up bills is the impact of having to modernise and replace the transmission and distribution network; the pipelines, the overhead pylons, all those sorts of things having to be replaced over the next decade – and that costs some money. Actually the smallest impact on people’s bills is through some of our green policies.”
Energy bills have more than doubled since 2004 to more than £1,300 a year per household, largely due to rising gas prices. Green policies have also added to the increasing costs of gas and electricity.
Energy companies warned on Wednesday that a scheme to insulate the homes of poorer households could cost up to £125 per household, rather than the £50 claimed by the Government.
The energy companies, including British Gas, npower, E.ON, Scottish Power, SSE and EDF, are likely to be big beneficiaries from yesterday’s deal because they will be paid to build the power stations and wind farms.
The agreement brings an end to months of wrangling between the Chancellor and Ed Davey, the Liberal Democrat Energy Secretary. Ministers plan to include the reforms in next week’s Energy Bill, which was delayed while Mr Osborne and Mr Davey argued over the green agenda.
Lib Dem sources said that the party was “extremely pleased” to have won support for the reforms that would mean more wind farms and nuclear power stations were built.
Conservative sources were claiming the compromise deal was a victory for Mr Osborne, after he secured concessions limiting the level of taxpayer cash spent on green energy in the long term.
He threw out Lib Dem demands for a target that would have forced Britain to get all its power from green sources by 2030.
Green groups were last night furious that the “decarbonisation” target has been scrapped.
Andy Atkins, executive director of Friends of the Earth, said Mr Osborne’s move “banged the final nail in the coffin of [David] Cameron’s pledge to lead the greenest government ever”.
The Coalition agreement said the Government would heed the independent advice of the committee on climate change. The committee warned Mr Osborne and Mr Davey earlier this year that a decarbonisation target was needed to tackle climate change effectively.
This call was last night echoed by Ed Miliband, the Labour leader, who said that he supported the target and accused the Chancellor of “leading the dash for gas, and pandering to the climate sceptics on the back benches”.
The Chancellor has got an agreement that the UK will reconsider its “carbon budget” – another target on reducing carbon dioxide emissions – if it causes the economy to lag behind others.
Mr Osborne will also publish a plan on how to support more gas plants in the Autumn Statement next month. The Chancellor and Mr Cameron have been concerned that climate change policies will lead to unaffordable energy bills.
The Chancellor also pledged earlier this year that he would not allow saving the planet to come at the cost of “putting our country out of business”.
However, the Government has committed to replacing almost all of Britain’s coal stations with low-carbon nuclear power and wind energy, which will cost hundreds of billions of pounds.
Officials have not yet worked out how much the deal will cost households and businesses, but figures suggest that average bills were likely to rise by £36 by the end of the decade and by £178 within 20 years.
They claimed that bills would rise by £245 a year without these policies, which reduce dependence on gas prices.
Angela Knight, the chief executive of Energy UK, representing the “Big Six” companies, said of the deal: “This must bring forward the jobs and economic growth that the UK needs.”