Bloomberg News

U.K. Renewable Energy Expenses to Triple for Consumers 2020

November 22, 2012

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 ($175 billion) 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.

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

The deal, to be announced tomorrow 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

A spokesman for the department said the result would be a landmark in the once-in-a-generation effort to upgrade Britain’s electricity infrastructure. The government estimates the measures may support 250,000 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.

Obsorne repelled Davey’s effort to have an immediate goal for removing carbon from utility emissions, known as a “decarbonization target.” He 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.

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

Davey and companies including Siemens AG (SIE) and Areva SA (AREVA) had called for a target to decarbonize the power sector, which they said was needed to give certainty for investments.

Carbon Target

“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.”

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.

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.

Clear Signal

“The investment community is desperately waiting for a clear long-term signal, that we are serious about reducing our emissions and therefore green infrastructure is a safe area to invest in,” Nicolas Molho, head of energy policy at the environmental group WWF said by phone from Godalming south of London.

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.

The government will also have authority to hold auctions from 2014 at times of peak demand for power capacity, according to the officials.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

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


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