Green energy 'gives power firms £7bn windfall'

www.telegraph.co.uk
11 July 2011

Britain's biggest energy companies will be handed a £7 billion windfall by Government plans to boost "green" power generation, analysts have said. Power companies who are already putting up household bills are set to benefit from measures to encourage the building of new nuclear power stations and windfarms, according to Credit Suisse.

Chris Huhne, the Energy Secretary, will tomorrow set out plans to encourage low carbon energy generation techniques. The Electricity Market Reform White Paper will offer financial incentives to low carbon generators, guaranteeing them a fixed price for their power above the market price. Those incentives will be funded by households though their power bills.

According to a Credit Suisse report, higher prices will bring in an extra £24 billion for power companies between 2013 and 2020. Their costs are only forecast to rise by £17 billion, giving a profit of £7 billion. Companies' profits will be determined by the level the carbon "floor price" is set at, something the bank said was subject to "uncertainty". With energy firms already increasing household bills sharply this year, ministers are sensitive to suggestions that their plans will add to consumers' costs.

Mr Huhne yesterday insisted that the Government's plans will mean a long term reduction in household energy bills. Some estimates suggest Government "green" energy measures could add £200 to the average household's annual energy bill. Ofgem, the Government's energy regulator, has said it expects prices to rise by at least 10%.

Mr Huhne said that those estimates did not take account of other Government measures to reduce household energy consumption, such as encouraging insulation and "What it doesn't do is take account of the impact of that energy saving. That's the effect on gas and electricity prices, but once you take the effect on bills you actually find that we're getting overall bill down in the long run", he told the BBC.

Ministers believe that their plans will mean that British power stations will stop burning coal to generate power within the next three years. Mr Huhne insisted that such a shift away from fossil fuels was the only way to bring stability to household bills. Energy firms blame this year's price rises on growing demand for energy from Asia and uncertainty in the Middle East.

Britain must generate more of its energy from other sources, Mr Huhne said. "If we want to get off the vulnerability which we've got to these world markets, we've got to move to low carbon sources". According to the University of Cambridge Energy Policy Research Group, the Coalition's market reforms could increase household bills by 32% by 2030 and "send UK electricity prices towards being the highest in the European Union". Mr Huhne strongly rejected the Cambridge estimates.