Energy bills to rise by £170 a year to fund wind farms 

The cost of Government support for low-carbon electricity under the new Energy Bill will add less than £100 to the average household’s bills annually, Energy Secretary Ed Davey said today.

Critics claim that the legislation will send consumers’ bills soaring, by authorising ministers to put £7.6 billion towards “green” power generation in 2020, up from £2.35 billion this year.

But environmentalists say the Bill does not go far enough, because it does not include a target to slash carbon emissions from the power sector by 2030 – although it does include the power to set a target in 2016 if it is considered necessary.

An estimated £110 billion is needed in the next decade to renew the UK’s ageing electricity infrastructure, with much set to go into low-carbon power sources such as wind farms to cut emissions and keep the lights on.

The forthcoming Energy Bill, which aims to drive the investment, has been the subject of political wrangling within the coalition, with Mr Davey voicing support for long-term limits on carbon emissions by the power sector and Chancellor George Osborne backing a second “dash for gas” with support for new gas power plants as a cheap source of electricity and tax relief for unconventional shale gas exploration in the UK.

But agreement has now been reached on a series of contentious issues.

In a statement last night, Mr Davey hailed a “durable agreement” which would allow him to introduce a Bill next week and have essential electricity market reforms up and running by 2014, as planned.

“They will allow us to meet our legally-binding carbon reduction and renewable energy obligations and will bring on the investment required to keep the lights on and bills affordable for consumers,” he said.

The Energy Secretary rejected accounts of a bitter row with the Chancellor, describing the long-running talks as a “good negotiation” leading to the two coalition parties “coming together (to) deliver the biggest boost to green energy”.

He made clear that the legislation will not rule out future abated gas plants or the exploitation of shale gas reserves through innovative “fracking” technologies in areas such as Lancashire.

Mr Davey, who said he would make a decision “shortly” on whether to allow power company Quadrilla to continue fracking near Blackpool, told BBC Radio 4’s Today programme: “I don’t think it’s gas or renewables. I think we need both, and actually they can be very complementary… I have been very clear and the Chancellor has been very clear that shale gas does offer an opportunity to the UK.”

Dismissing predictions of massive increases in electricity bills as “utter rubbish”, the Energy Secretary said: “The impact from supporting green policy is only 2% on people’s bills at the moment. That will grow and by 2020 it will be about 7%. We are talking about under £100 in 2020.”

The impact of other Government measures, such as initiatives to encourage energy efficiency, will result in a £94 overall saving on household power bills by 2020, he said.

Labour has condemned the Bill’s failure to set a limit for the amount of carbon dioxide that can be emitted per megawatt hour of power from the electricity sector by 2030 – something which the party’s leader Ed Miliband backed in a speech yesterday and which supporters say is necessary to give investors certainty to back renewables, carbon capture and storage technology, and nuclear reactors in the UK.

Although there is no 2030 target, the inclusion of a power to establish one in 2016, when the Government’s advisers on climate change are set to recommend how much carbon emissions should be cut by 2030 across the economy, is being claimed as a victory for Mr Davey.

The Government believes the spending level agreed for low-carbon power subsidies will allow the UK to meet goals to supply 30% of electricity from renewables by 2020 and also fund other low-carbon technology including nuclear and fossil fuel power plants where emissions are captured and stored.

But shadow energy and climate change secretary Caroline Flint said: “It is outrageous that on the day Ed Miliband committed to a tough cut in Britain’s carbon levels by 2030, George Osborne and Ed Davey abandoned their target.

“This is a humiliating failure by the Liberal Democrats and a betrayal of David Cameron’s promise to be the greenest government ever.”

Environmental campaigners also reacted angrily to the news.

John Sauven, executive director of Greenpeace, described it as “a blatant assault on the greening of the UK economy that leaves consumers vulnerable to rising gas prices, and sends billions of pounds of clean-tech investment to our economic rivals”.

And Friends of the Earth executive director Andy Atkins said: “The coalition has caved in to Osborne’s reckless dash for gas and banged the final nail in the coffin of Cameron’s pledge to lead the greenest government ever.”

The agreement will also see a “capacity mechanism” established, with companies able to bid in auctions for support to provide flexible electricity supplies such as gas power, or for measures to reduce demand for energy, from 2014 if it appears that UK peak demand might exceed supplies.

The Energy Bill will also set up a Government-owned company with which firms can sign long-term contracts to receive a guaranteed price for electricity from low-carbon sources, which it is hoped will give investors certainty and will bring down the high cost of capital for schemes such as nuclear reactors and offshore wind.

The chairman of the House of Commons Energy and Climate Change Committee, Tim Yeo, said Mr Davey had “come out ahead on points” in negotiations, and the Treasury had provided a “realistic” package of support for green power.

Mr Yeo told Today: “I personally think that a couple of pounds a week – maybe rising to almost £3 a week – is a reasonable price for Britain to achieve a degree of energy security to reduce its total dependence on fossil fuels and to honour its commitments to cut greenhouse gases.”