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Will Britain Have The World’s Costliest Energy?

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Danny Fortson, The Sunday Times

It’s crunch time. Britain must decide to go for green power or dash for gas

Ed Davey, energy secretary, wants to go all green

Ed Davey, energy secretary, wants to go all green

Tim Yeo plans to cause a bit of trouble tomorrow. The Conservative MP and chairman of the energy and climate change select committee wants to shoehorn a late tweak into the Energy Bill. It has its third and final reading in the Commons this week.

The bill hardly needs further complication. Weighing in at 208 pages, it is the blueprint for a revolution.

The government wants to replace Britain’s decrepit fossil fuel energy system with a shiny new low-carbon one. To guide the £200bn makeover, ministers have cooked up a melange of huge subsidies for low-carbon technologies and penalties for polluters. And they want most of the overhaul done within seven years.

Supporters call the policy — championed by Ed Davey, the Liberal Democrat energy secretary — ambitious. A growing chorus of critics call it something else: the world’s most expensive energy policy, which the government is ramming through despite the seismic changes that have occurred since it was conceived.

The faultlines on the issue are enormous — and not all neatly arranged on party lines. Yeo, for one, thinks the reforms don’t go far enough. He wants a new pollution reduction target for Britain’s electricity industry to ensure it has no choice but to go all in on green.

The amendment would require companies to slash the “carbon intensity” — a measure of pollution produced per unit of power — from 450 grams per kilowatt hour today to 50 grams by 2030.

Yeo’s gambit has been billed as a signal of intent to investors wary of the government’s commitment to its troubled power plan. The change is expected to be rejected but it lays bare the bitter divide that has opened within the coalition.

The Lib Dems support a headlong leap into expensive, renewable power to replace the old coal-fired stations being shut down. Many Conservatives, the chancellor among them, are calling for a rethink of that approach. They want a new “dash for gas”, in light of the vast sources of cheap gas uncovered in recent years. […]

Since then America’s gas price has halved, and prospectors armed with the same technology that unleashed the US energy revolution have found huge reserves from Blackpool to western Argentina.

This has given ministers pause for thought. New gas plants cost just a quarter of offshore wind farms of similar capacity. The disadvantage, of course, is that they require gas, while wind farm “fuel” is free.

Predicting the gas price 10 or 20 years from now is impossible. Yet the mere potential for cheap fuel has changed the terms of the debate.

Yeo’s attempt this week to include the decarbonisation target in the bill is a tactical move against other Tories who want to build cheap gas now and get back on the renewables train in a decade, when they are cheaper to build.

He said: “There is a clear degree of confusion in the minds of prospective investors as to how committed the government is to supporting renewables, especially after the new gas strategy was published last year. The advantage of this amendment is that it would remove that doubt.”

An alliance of 55 companies and organisations, including SSE, the utility, and the Church of Scotland, has called on MPs to back Yeo’s amendment.

Last month the Committee on Climate Change (CCC), the government’s anti-pollution adviser, claimed that investing early in low-carbon power — without the gas detour — would save between £25bn and £100bn by 2030. Indeed, it called for even bigger subsidies for wind and nuclear.

Between now and 2020, the CCC estimates, renewable energy developers will receive at least £7.6bn in taxpayer support. EDF, the French atomic energy group locked in talks with the government over two new reactors at Hinkley Point in Somerset, is lobbying for tens of billions of pounds of support for that project alone.

The Energy Bill would make law a subsidy regime that pays offshore wind developers roughly three times the wholesale power price. Guaranteed payouts for technologies such as biomass would be enshrined.

In a note on energy policy, Peter Atherton, an analyst at Liberum Capital, the broker, said the government’s approach was “not plausible”. Why? The battered balance sheets of the recession-hit utilities, government infighting, the byzantine planning system — the list goes on. “Moving from a largely fossil-fuel-based power system to one dominated by renewables and nuclear in just a decade and a half, while keeping the lights on and consumer bills affordable, may simply be impossible.”

Even if it did come off, he estimated, household bills would soar “by at least 30% by 2020 and 100% by 2030”, well beyond government estimates and after annual home bills have rised by a fifth to £1,420 since 2009.

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