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Energy incentives to build near cities will add to domestic bills

Companies will be encouraged to build onshore wind farms and gas power stations nearer towns and cities after the energy regulator approved new renewable subsidies that will increase household energy bills.

Announcing changes in the way generators are charged by National Grid to transmit electricity round the country, Ofgem said that in future wind farms in remote areas such as northern Scotland will pay lower charges.

Gas plants and wind farms in southern England, which are usually closer to urban areas, will shoulder their share of the costs, with the higher transmission charges passed on to consumers via higher energy bills.

The regulator claimed in its announcement that the changes “will lead to lower costs overall for consumers” but a spokeswoman admitted that bills will initially rise by up to 75p a year as a result but could not say for how long.

Power plants’ transmission charges are at present based on size and the distance they are from towns and cities where the electricity is used. Most wind farms are in rural remote areas and so pay much higher transmission charges.

Under the changes, which come into effect in April 2016, wind farms will have to pay transmission charges only when the wind is blowing.

This means that charges paid by a wind farm in northern Scotland would almost halve, from £36.98kw/h today to £20.84kw/h. This would save a typical 100mw wind farm in Scotland more than £1 million a year.

Ofgem said that higher charges for gas plants and wind farms in southern England would incentivise energy companies to build them closer to towns and cities.

Martin Crouch, the senior partner for transmission, said: “The changes to transmission charging are the result of an extensive consultation process and detailed analysis. The new arrangements more accurately reflect the costs of Britain’s diverse energy generation and will lead to lower costs.”

The regulator yesterday also gave the go-ahead for a £1.2 billion underwater cable in north Scotland to transmit electricity from wind farms southwards. SSE will build the link, between Caithness and Moray, which will operate by 2018. The regulator said the cable would reduce the need to pay wind farms in Scotland “constraint” money to stop generating to prevent the system overloading when it is windy.

The risk of oil supplies being disrupted by the turmoil in Iraq and the Middle East are extraordinarily high, the International Energy Agency has warned. The body, which represents the world’s biggest energy-consuming countries, said that there was “little room for complacency” over crude prices, which remain at historically high levels. The oil price hit $115 a barrel last month after the start of an offensive by insurgents in Iraq, although it has slipped back to $108 in recent days. The IEA said that prolonged violence may shake investor confidence and set back growth.