David Cameron’s Nightmare: Monster Power Bills Are A Guaranteed Vote-Loser
Consumers are having to bear the cost of big green subsidies. Rising bills are a guaranteed vote-loser, but the government is forging ahead with policies that make them unavoidable.
Vincent De Rivaz, chief executive of EDF Energy, hunched over the microphone, nervously thumbing a sheaf of papers.
“We are on the brink of delivering an infrastructure project similar in scale to the London Olympics,” he told the panel of MPs. “But like all investors in capital-intensive infrastructure projects, we need to have a compelling business case . . . We must be honest. We must expect the unit price of electricity to increase.”
It was not the first time de Rivaz had made a pitch for higher household energy bills. His appearance last week before the Commons energy and climate change committee was the latest in a long-running campaign to secure Britain’s first new nuclear plant in more than two decades.
EDF plans to spend £14 billion on two reactors at Hinkley Point, Somerset. The quid pro quo demanded from the government is a guarantee that EDF will be able to charge well over double the current electricity price to ensure it makes money.
Negotiations about the final figure are in their closing stages and there could be an announcement by Christmas.
The nuclear guarantee is one of a raft of new charges being added to household bills. From carbon taxes to solar subsidies, the costs of Britain’s much-vaunted efforts to clean up the energy industry are feeding through to the customer.
It is a point the energy companies, including British Gas and Npower, were at pains to emphasise when they revealed another round of price increases this month. EDF announced a 10.8% rise last week, pushing the average annual dual-fuel bill to £1,334. Cue public outrage.
Seeking to quell the unrest, David Cameron made a rash pledge to force utilities to put households on their lowest-priced deals. John Hayes, the energy minister, quickly softened that stance.
The mixed messages are a sign of the wider conflict in Whitehall. Rising bills are a guaranteed vote-loser, but the government is forging ahead with policies that make them unavoidable.
Consider the case of British Gas. The average annual bill from Britain’s biggest utility rose by £183 between 2007 and 2011. Nearly one-third of that, £56, was a result of green taxes and related government-imposed charges. The rise in low-carbon fees represented a 60% jump — twice the rate of increase in the wholesale gas price, the biggest component of power bills.
That trend is gaining momentum. Andrew Horstead of Utilyx, the energy consultancy, said: “At the moment, about 55% of the bill is the commodity price, while the rest is green taxes and related costs. By 2020, you’ll see those percentages flip as the new charges feed through.”
The government’s controversial solar power subsidy is a good example. Greg Barker, the climate change minister, was forced into an embarrassing U-turn last year after the government was overwhelmed by interest in the feed-in tariff, which guarantees rates for electricity produced by solar panels.
Barker slashed the payout by more than 70% for large installations and by half for the smaller ones found on homes. Several solar panel producers and installers have sued the government over the cut. Even so, tens of thousands of people got in before the change took effect.
The upshot is that the government is locked in to paying hundreds of millions in solar subsidies for the next 25 years. That is the equivalent of an extra £2.19 on the £45 per megawatt hour (MWh) wholesale power price — a charge that did not exist a few years ago.
There are others. In April, the carbon price floor will kick in. This new emissions tax will require industrial plants, manufacturers and power producers to pay at least £15.70 for each ton of carbon dioxide they emit. The levy will rise every year, reaching £30 by 2020.
For householders, the carbon floor will translate into an estimated £2 per MWh of electricity. By 2020, that will rise to at least £14, according to Utilyx.
Next year will also see the main subsidy for pricey renewable technologies such as wind and biomass — renewable obligation certificates — rise slightly to £8.70 per MWh.
All of the above, of course, will be added to bills on top of any additional surge in the gas price, which has risen by a third in the past two years.
The government has done its best to play down the impact. Indeed, the Department of Energy and Climate Change has predicted the measures will actually lead to savings. It argues that widespread implementation of energy efficiency measures will reduce demand and therefore bills.
The department said: “These policies are part of the solution, helping us reduce our reliance on imported gas and cutting energy waste … leaving us in a much better position in the years to come than if we just sat back and did nothing.”
Industry observers say that in an age where electronic gadgets are increasingly common, banking on a drop in electricity use is foolhardy.
“There is significant scope to improve energy efficiency, but that will not be sufficient to offset the expected price rises,” said Horstead. “The energy department makes the assumption that households will ‘green’ their homes and generate their own energy. It is a lifestyle choice and that will be the hardest part to change.”
Others are less doubtful. More than 7m homes — nearly one-third of the total — are without insulation. Ian Peters, managing director of energy at British Gas, said this presents a huge opportunity for savings.
The nation’s largest utility has stepped up schemes to provide free loft insulation and replace old boilers. The results are dramatic, Peters said. “If you put in a modern boiler, proper insulation and modern thermostatic controls, you can cut your gas bill by as much as half. In the past four years, gas consumption among our customers has fallen 22%.”
Such results may be heartening but households have nonetheless seen bills double over the past five years.
The government is preparing for another round of public hand-wringing when it reveals the result of its nuclear price talks with EDF.
Analysts at Citi, the investment bank, say the £7 billion per reactor price tag means the company may need a government guarantee of as much as £166 per MWh — more than three times today’s wholesale electricity price — before it agrees to go ahead at Hinkley.
Sources close to the talks expect the price guarantee to be be much lower. What is clear, however, is that EDF has Whitehall over a barrel.