By Jim Pickard, Chief Political Correspondent
Green policies will add 41 per cent to electricity prices by 2030 –
according to the energy department’s own forecasts.
Policies to promote low-carbon energy include a guaranteed “strike price”,
expected to be announced within days, to support EDF’s proposed new nuclear
reactors at Hinkley Point in Somerset – at double the market price.
The impact of such policies has risen up the political agenda amid public
concern over rising utility bills.
Green policies currently account for only a small part of consumer costs –
typically less than 10 per cent of average household energy bills. But that
proportion is set to rise steeply, according to the government’s own
forecasts. Measures to support green power and increase energy efficiency
will add 33 per cent to the price of electricity by 2020 and 41 per cent by
2030, according to the Department of Energy and Climate Change.
The figures are in a report published in March but have taken on added
resonance since Labour leader Ed Miliband promised to freeze energy prices
if he is elected prime minister. His pledge has intensified debate over the
causes of rising energy costs – including subsidies for low-carbon power
generation.
The energy department report predicts that bills will fall overall during
the next two decades as people use less electricity. That prediction hinges
on household appliances becoming more efficient and widespread take-up of
government-backed insulation schemes such as the Green Deal.
More efficient appliances alone are forecast to cut £167 from a typical
£670 electricity bill by 2020. This would mitigate the inflationary impact
of green subsidies. But some experts are cautious about the chances of
achieving such big savings.
“That is quite an ambitious assumption. You need a mix of more efficient
appliances, more flexible energy use and better insulated homes,” said Phil
Taylor, director of the Newcastle Institute for Research on Sustainability.
“We will get some way along that path but how far and how quickly I don’t
know.”
The energy department said the only way to “keep the lights on” and cut
bills in the long run was to invest in new infrastructure and efficiency
measures.
But the political consensus over that strategy has come under strain as
Conservatives clash with Liberal Democrat coalition partners over the role
of green power, while energy companies complain about the cost of
efficiency schemes.
Tories have also been quick to highlight Mr Miliband’s championing of
cost-inflating green subsidies when he was energy secretary.
David Cameron has ordered a review of green policies in an attempt to keep
bills down.
The main policy in the line of fire is one of the efficiency measures that
ministers hope will reduce costs in the long run. The Energy Company
Obligation is aimed at cutting bills for the poor through better insulation
but involves heavy upfront costs for industry. Ed Davey, Lib Dem energy
secretary, has vowed to protect the policy.
By contrast, the biggest subsidy for low-carbon energy, called the
“electricity market reform”, is not under review. This policy will use
“contracts for difference” to guarantee stable revenues for investors in
wind farms and new nuclear reactors.
It is this mechanism that will guarantee the price of nuclear power from
Hinkley Point, attracting a huge Chinese investment likely to be confirmed
this week.
Overall state support for low-carbon electricity is set to almost triple
from £2.3bn in 2012-13 to £7.6bn by 2020.
Charles Perry – former director of BP Green Energy and co-founder of
advisory firm Second Nature – insisted that the cost of green energy would
come down over time.
“Fossil fuels are becoming more costly, the cost of renewables is falling.
In the UK those cost curves haven’t yet intersected,” he said. “But in
Germany they have reached parity. That is because they stuck with a clear
government strategy for 10 years.”
Copyright The Financial Times Limited 2013.
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