Energy bills will continue to soar and ministers are powerless to protect households from them, Ed Davey, the Energy Secretary, warned yesterday.
Days after one of Britain’s biggest utility companies increased its prices by more than 8 per cent, the Lib Dem minister said that politicians could not control the factors behind rising costs. He added that green levies applied to energy bills would not be cut to help consumers.
Mr Davey questioned the promise by Ed Miliband to freeze prices for 20 months if he won the next general election because, he said, the costs that make up more than half an energy bill were beyond his control.
He pointed to the rise in the wholesale cost of gas on international markets, which “neither you nor Ed Miliband can do anything about”. The need to replace ageing power networks was also responsible for driving up bills, he said. “So these are costs which are impossible to avoid.”
His message comes after the decision by SSE to increase its prices by an average of 8.2 per cent from next month. The move will push up the cost of the company’s dual-energy bills by £106 to £1,380 a year.
Rival companies are expected to bring in their own rises soon. The move will also anger Tory ministers, who had hoped to cut green levies, which amount to 9 per cent or £110 of an average annual bill.
Mr Davey also refused to scale back government subsidies for wind farms and solar parks. “We have to invest in renewable energy to catch up with the rest of Europe,” he told the Andrew Marr Show on BBC One yesterday.
The minister said that most green levies were funding social programmes to tackle fuel poverty, rather than being used to develop green energy sources such as wind farms. He said that pensioners and other low-income households were the biggest beneficiaries of the present system.
“People have got to understand what these green taxes actually are,” he said. “Most of them are actually social policies to help the fuel poor manage their bills. I don’t think we want to get rid of those, do we? Moreover, we need to help people who aren’t necessarily fuel poor, but who want to do energy efficiency work to reduce their bills.”
Rather than cut these social programmes, he suggested that they should be extended. “But I do believe we need to do ever more to help people, particularly vulnerable people, people suffering from fuel poverty.”
The most expensive levy is for a new scheme to insulate the homes of pensioners and other low-income households, called the Energy Company Obligation (ECO). Power companies have been lobbying the Government for months to water down the targets under the ECO, which they claim will save money. According to the industry, the scheme as it stands will cost consumers £94 each year to fund, almost twice as much as the official estimate of £53.
Based on the official estimate, the ECO makes up about 4 per cent of an average annual dual fuel bill. An obligation on companies to subsidise tariffs for low-income households costs another £11, or 1 per cent. Levies for wind farms and solar parks and other forms of low carbon generation amount to about £50 or 4 per cent, with the remainder of the levies going on smart meters.
The Government’s scope to scale back the ECO programme is restricted by its legal obligation to try to eradicate fuel poverty by 2016. Its independent advisers, the Fuel Poverty Advisory Group, have warned that bowing to industry demands to allow more time to complete the work by extending the scheme by two years could lead to a judicial review.
Mr Davey also said that a deal to award billions in consumer subsidies to EDF Energy to build Britain’s first nuclear reactor in a generation is extremely close.
George Osborne is in China this week, where he will announce a venture between the French company and China General Nuclear Power Group to invest in the £14 billion reactor at Hinkley Point, Somerset. The subsidy deal will be announced at the same time or shortly afterwards.
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