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Official Price Estimates Dubious: ‘DECC Has Massaged Green Energy Costs’

Britain’s policies to curb emissions and spur investment into nuclear and wind to secure power supplies may raise electricity prices for factories by as much as 58 percent by 2030, according to a government study.

The U.K.’s Department of Energy and Climate Change published today an initial estimate of the costs of its policies on so-called energy-intensive users such as steel factories, cement works and paper mills. The biggest rise would come a scenario whereby natural-gas prices fall, the analysis on the government website shows. Price rises would be curbed to as little as 7 percent should gas prices remain unchanged, according to the analysis.

Natural gas is used to produce about half Britain’s electricity, so its cost is used as a proxy for power prices. The government is overhauling the electricity market and studying measures such as long-term contracts to give price certainty and help attract funds for offshore wind turbines, nuclear reactors and carbon capture and storage projects. A tax on emissions from fossil fuels, under the so-called carbon floor, is planned from 2013 as well as programs to drive energy efficiency such as its Carbon Reduction Commitment.

“There are some wholly implausible assumptions about the pass-through of carbon and renewable subsidy costs,” Jeremy Nicholson, London-based director of the Energy Intensive Users Group, said by telephone. “The analysis confirms that significant compensation would be needed to offset the impact of these policies. Our suspicion is that DECC has massaged the figures to make the impacts look less severe.”

Large industrial users faced electricity price increases of 45 percent from 2007 to 2009, according to the analysis. Government policy is aimed at cutting power sector emissions and the U.K.’s dependence on fossil fuels, according to the report.

Bloomberg, 29 July 2011