Household bills to increase due to energy reforms
Energy reforms will increase household bills, minister Charles Hendry admits
Household energy bills will rise as a result of an overhaul of the sector to be unveiled on Tuesday, ministers admitted, amid industry warnings the reforms would add unnecessary costs.
By Emily Gosden
8:46PM BST 21 May 2012
The government is to unveil the biggest shake-up of the industry since privatisation in a draft energy bill, intended to secure £110bn of investment in power generation.
Charles Hendry, Energy Minister, told The Daily Telegraph: “People shouldn’t think this will bring about a drop in prices when we have £110bn of investment needed to keep the lights on in this country.
“There’s a cost, but doing it this way we’re delivering that investment at the lowest cost to consumers.”
Amid claims from analysts that annual household bills could rise by as much as £200 to finance the reforms, ministers will argue the proposals will in fact keep “bills down”.
They are expected to claim that bills will be 4pc lower over the next 20 years than they would be without the policies.
Mr Hendry claimed the reform would also mean “more stable prices” for consumers. “We can give much greater assurances to both industrial and domestic customers as to where prices will be,” he said.
Yet many in the industry have poured scorn on the idea that the proposed reforms offer the cheapest route to securing investment.
Keith MacLean, head of policy at SSE, criticised the proposed ‘contracts for difference’ (CfD), which will guarantee investors a price for power generated by new nuclear or renewable plants.
“The proposed CfD is a complex construct, designed to mask what is effectively a subsidy for new nuclear power, which could derail investment in renewables.
“It could also have damaging impacts on the energy retail market and lead to higher-than-necessary increases in customer bills,” he said, calling on ministers to “listen to the widespread industry concerns”.
Rival supplier RWE npower has warned that another element of the draft bill, the ‘capacity mechanism’, could add billions of pounds in unnecessary costs.
The government will on Tuesday publish its proposal for operating the CfD, setting out who should act as the counterparty on the contracts.
Industry has warned the costs will be higher unless that guarantees are backed by the government – but European state-aid rules prevent such a guarantee.
Mr Hendry said the government would “also be asking the Commons Energy Select Committee to look at alternatives” to its proposal.