Sweeping energy market reforms due to be unveiled by the Government on Tuesday will make UK electricity bills among the highest in Europe, say analysts.
Chris Huhne, the Energy Secretary, is likely to say that energy companies, such as Centrica and EDF, will get a fixed price for electricity generated from nuclear power and wind farms which is higher than the market price.
However, it is understood that the Government may delay another subsidy for power station owners, called capacity payments, while there is further consultation.
The financial incentives will be funded by consumers, who will see their electricity bills rise by 30pc during the next 20 years from £493 per year to £655. This estimate was made before electricity bills soared to their highest ever for millions of customers after 10pc to 15pc price increases by British Gas and Scottish Power in the past weeks.
However, ministers have decided to push through the costly package to make sure EDF, Centrica, RWE, E.ON, Scottish Power and Scottish & Southern think Britain is an attractive place to build nuclear power stations and wind farms. The UK needs to reduce its carbon dioxide emissions from power generation to hit European Union targets.
The changes will hand billions of pounds in subsidies to the energy companies and kick-start a construction programme creating thousands of jobs.
However, there has been mounting speculation about the commitment of the German partnership, between RWE and E.ON, to building two new stations in the early 2020s. RWE has hired Goldman Sachs to conduct a review of its business that could lead to its UK arm, npower, being sold off.
Volker Beckers, the chief executive of RWE npower, told The Telegraph that the UK business “remains core” to the German parent and emphasised the company’s commitment to nuclear power.
“RWE has undertaken a review of the entire portfolio but one thing that is absolutely clear is that the UK and indeed the Benelux companies remain a core market. We’re making a lot of investments which will go live in the next few months. There are still commitments and no wobbling as far as the UK market is concerned. The integrated nature of our business is the only way we can deliver financial benefits to consumers and shareholders. I do personally believe this [electricity market reform] can work.”
The result will be expensive for customers. Dr Michael Pollitt and Laura Platchkov, experts from the University of Cambridge and the Energy Policy Research Group, estimate that: “A 47pc increase in electricity unit costs, envisaged under the electricity market reform, would send UK electricity prices towards being the highest in the European Union.”
In a report for the Consumers’ Association, they find that the worst hit sector of society will be single pensioners.
On Saturday night the Government insisted that leaving the electricity system as it is would be more costly in the long run.
It believes switching to nuclear and wind makes sense because European Union-led taxes on gas and coal power generation will increase the costs of fossil fuel generation.
Combined with further green taxes, such as the European emissions trading scheme, and extra upgrades to the UK’s electricity network, the measures could see Britain’s gas and electricity bills rise more like 50pc – or £500 – according to Ofgem, the energy regulator.
see also a much more realistic estimate: