Business

Energy Bill: Households to fund £7.6bn green investment

  • 23 November 2012
  • From the section Business
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Wind farm
The Bill will mean consumers paying for cleaner energy generation

The government has published details of its long-awaited Energy Bill, designed to keep lights on and emissions down.

It will allow energy firms to charge households an extra £7.6bn until 2020, which will go towards the development of low-carbon electricity generation.

A decision about setting carbon emission targets for 2030 has been delayed until 2016, after the election.

Fears have been expressed about the impact on bills and whether this delay will put off investors in new plants.

Announcing the Bill, the government said: "With a fifth of the UK's electricity generating capacity due to close this decade, reforms are needed to provide certainty to investors to bring forward £110 billion investment in new infrastructure to keep the lights on and continue the shift to a diverse, low carbon economy as cheaply as possible".

The independent advisory committee on climate change estimates the £7.6bn the plan allows for will add about £110 to the average household energy bill in 2020.

The Department for Energy and Climate Change (DECC) has a lower estimate of £95 - or a rise of 7% - although some analysts think it would be more.

DECC believes the clean energy and efficiency measures will save on bills in the long run. The Energy and Climate Change Secretary, Ed Davey, told the BBC that the measures would eventually save about the same amount.

Environmentalists condemned the bill, saying the lack of a 2030 emissions target would make it very hard to meet the UK's law on climate change.

But business groups said more needed to be done to mitigate the impact on firms of these extra costs, pointing to the loss of 900 jobs at a major energy user such as Tata Steel, as it cut back its operations in the UK.

The Energy Intensive Users Group said it supported the government's efforts to shift to cleaner energy generation "but we need to ensure that in doing so we don't undermine competitiveness of UK manufacturing internationally".

Consumer groups also expressed concern about the prospect of higher bills.

"The Treasury has generously agreed to stick the entire cost of de-carbonising UK power on to consumer bills. At the same time, they are pocketing all the money they are raising in carbon taxes," said Ed Matthew, the director of the Energy Bill Revolution campaign, arguing that this revenue should go into a major energy-efficiency programme to reduce bills.

Battleground

Details of the bill were announced late on Thursday although the Bill itself will not be published until next week.

They include:

  • Households to pay an estimated £20 next year to fund clean energy investment, rising to £95 in 2020
  • Energy companies to get £7.6bn from this to invest in low-carbon power
  • But no target for carbon emission levels by 2030
  • Longer-term emission levels to be discussed - but not necessarily set - in 2016

Crudely speaking, the bill has been a battleground between Chancellor George Osborne, who favours gas-powered generation, and the Liberal Democrats, who want clean energy.

The chancellor is adamant that gas will help keep down power bills in the future.

Labour said this was a "humiliating failure" for the Lib Dems, who wanted gas banished from the electricity system almost entirely by 2030 to reduce CO2 emissions in line with the Climate Change Act, although gas will be needed as a back-up.

The Lib Dems believe gas prices are too volatile to be a reliable source of energy. The International Energy Agency has forecast natural gas prices to rise by 40% by 2020, even with an influx of cheap shale gas.

The Labour leader, Ed Miliband, said the government had made the wrong decision for the environment and the economy: "Instead of doing deals they should be doing the right thing by the country and the right thing by the country is to commit to carbon free electricity by 2030."

This was supported by environmental groups.

"By failing to agree to any carbon target for the power sector until after the next election, David Cameron has allowed a militant tendency within his own ranks to derail the Energy Bill," said John Sauven, executive director of Greenpeace.

Confidence to invest?

The conservative chairman of the Commons' Energy Select Committee, Tim Yeo, said the lack of a target was a "significant" omission which would add to uncertainty for energy firms deciding whether to spend billions of pounds on building new power plants over the next few decades.

But one major power company, EDF Energy, which is planning to build two nuclear power stations in Somerset, said it was happy with the contents of the Bill which gave "further clarity".

"The introduction of the Energy Bill next week is a very positive step," said EDF Energy chief executive Vincent de Rivaz.

The company, in line with other major producers, said it needed to see the details of the proposals before making any commitments to build new power plants.

There are many more fragments to come in the energy jigsaw.

Decisions on the way subsidies from bills will be shared between nuclear and various renewable technologies will be made next year.

Key decisions on how to ensure there are enough gas power stations to keep the lights on when the wind is not blowing will be announced alongside the chancellor's Autumn Statement.

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