Bloomberg News

U.K. Clean Energy Costs to Triple by 2020 in Power Bills

November 23, 2012

U.K. Renewable Energy Costs to Triple by 2020 for Consumer Bills

Energy Secretary Ed Davey will allow utilities to triple the renewable energy levy that comes through in household and business power bills to 7.6 billion pounds ($12 billion) by 2020. Photographer: Chris Ratcliffe/Bloomberg

Britain’s electricity customers will be paying higher bills by 2020 to cover the costs of expanding renewable energy supplies such as solar and wind, government officials said.

Energy Secretary Ed Davey will allow utilities to triple the renewable energy levy that comes through in household and business power bills to 7.6 billion pounds ($12 billion) by 2020, according to a spokesman at the Department of Energy and Climate Change. The change will come in legislation Parliament will consider once the details are published on Nov. 29.

The measures are part of the government’s 110 billion-pound program to replace aging power plants and reduce greenhouse gases. The decision helps provide utilities such as SSE Plc (SSE) and Electricite de France SA certainty over the scale of support the government is willing to grant clean energy, a level of transparency that the industry group RenewableUK has said is necessary to stimulate investment.

“This is a once in a lifetime change to our energy infrastructure, moving away from dependence on fossil fuels,” Davey said on BBC Radio 4’s “Today” program. “We are going to see a massive increase in investment in clean energy and in gas and in all parts of the energy infrastructure.”

The deal, announced today by Davey’s office, represents a compromise between the Liberal Democrat and Prime Minister David Cameron’s Conservatives. Cameron’s party, which leads the coalition, has emphasized its concerns about the costs of reducing emissions from electricity generation.

Energy Jobs

Davey for weeks has been negotiating over the package with Chancellor of the Exchequer George Osborne, who favors more natural gas and nuclear energy and is concerned about the cost and countryside impact of deploying more wind turbines.

Osborne repelled Davey’s effort to have an immediate goal for removing carbon from utility emissions, known as a “decarbonization target,” a move criticized by environmental pressure groups WWF and Greenpeace.

“By failing to agree to any carbon target for the power sector until after the next election David Cameron has allowed a militant tendency within his own ranks to derail the Energy Bill,” said John Sauven, executive director of Greenpeace. “It’s a blatant assault on the greening of the U.K. economy that leaves consumers vulnerable to rising gas prices.”

Caroline Flint, Shadow Energy and Climate Change Secretary for the opposition Labour Party, said the lack of a 2030 target was a betrayal of Cameron’s pledge to be the greenest government ever.

Election Deadline

Instead, the legislation will authorize the government to set out a target for fossil fuel emissions made by utilities in 2016, the year after the deadline for the next general election.

Osborne also got Davey’s backing for measures to support natural gas and shale deposits that will be announced in the Treasury’s autumn economic statement on Dec. 5. Davey said today he would make a decision on Cuadrilla Resources Ltd. fracking “shortly,” after exploration in the U.K. was suspended when drilling by the company caused two small earthquakes.

RenewableUK called the announcement “rock solid” and said it expects the 7.6 billion-pound sum to spur at least 40 billion pounds of investment from the private sector.

“It’s the most significant change around in the energy market for more than 20 years,” Gordon Edge, the group’s director of policy, said in an interview in London.

Higher Target

The measures will enable Britain to hit its renewable energy targets which involve getting about 30 percent of its electricity from renewable sources from about 9.6 percent now, while supporting about 250,000 jobs, the government said today in a statement.

“This package will send a strong signal to investors that the government is serious about providing firms with the certainty they need to invest in affordable secure low-carbon energy,” said John Cridland, director-general of the Confederation of British Industry.

EDF, which expects to decide on new reactors in Somerset, England by the year-end, welcomed the announcement. “This is good news and a significant step toward providing secure low carbon energy for the U.K. for many years to come,” said Vincent de Rivaz, chief executive officer of EDF Energy.

Under the plan, a Levy Control Framework will set the maximum amount that can be included in consumer bills to fund investments in low-carbon power generation.

Below Recommendation

The increase agreed is below the 8 billion pounds recommended by the Committee on Climate Change, which advises the government on environmental matters. Its figures represent the present value of the money. The government estimates the increase will swell to 9.8 billion pounds once inflation is taken into account. Davey said in June there’s a 20 percent tolerance to overruns under the levy.

“The impact from supporting clean technology is only 2 percent on people’s bills at the moment, by the end of the decade that will grow and by 2020 it will be about 7 percent,” Davey told the BBC today. The Renewable Energy Association lobby group said today households will pay 22 pounds this year to get 10 percent of their power from renewables.

The proposals also give government authority to introduce a capacity market allowing for power auctions from 2014 at times of peak demand, for delivery of capacity in the winter of 2018 to 2019, according to DECC.

Clear Signal

Another measure in the package is a price-guarantee for low-carbon electricity generators through so-called contracts for difference. Ministers decided to establish a government- owned private company acting as the single counterparty body under the arrangements, according to the spokesman. That’s in step with a proposal from industry.

It would scrap the initial plan to offer a “multiparty” body, a structure that Parliament’s Energy and Climate Change Committee said may make the contracts legally unenforceable.

Those contracts for difference guarantee a price for power in a way that supports generators. If wholesale power prices drop below a government-established level known as the “strike price,” investors in nuclear power stations and renewable projects will be compensated by suppliers up to that level. If prices are higher, suppliers and consumers will be reimbursed by investors.

“The key is have they managed to find a structure that on the one hand gives investors confidence there’s a robust, creditworthy counterparty on the one side, but structured it in a way that it keeps any liability off government’s balance sheet,” said Ronan O’Regan, a director at PwC in London.

To contact the reporters on this story: Sally Bakewell in London at sbakewell1@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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