David Cameron caused a furore in the House of Commons last month when he advised members of Parliament that he was proposing a new government incentive in which the energy companies would have to offer their customers the lowest priced tariff. His Energy Secretary Ed Davey made no comment at the time and it was thought the PM had shot himself in the foot, but now as the finer details of the Energy Bill are emerging, are customers better off before the bill or not? Well, in the short term no, possibly in the long term yes.
It seems that Cameron has used the low energy tariffs as a distraction for much more far reaching measures that will see household bills soar before they come down. So what is the problem and why has Cameron intervened?
There are two main points. The UK is under pressure, as are other EU countries, to clean up its act concerning ‘dirty’ power stations that are fuelled by gas and coal. The UK has to reduce its carbon emissions and it can only do this by reducing the amount of working coal power stations. This will help the UK meet its obligations regarding green environmental issues, according to European Law. However, by closing down these dirty stations we have a gap in the energy supply and this needs to be addressed. This is where the second main point comes in. The government has to invest in renewable energy sources such as wind farms and new, modern nuclear power stations, but it needs money to do this.
In an effort to meet its targets, the government is closing some of the UK’s biggest coal-fired plants in the next five years and furthermore, a number of old nuclear power plants are also due to close in the 2020s. This means that the government now needs to be more self-sufficient for its energy, so it doesn’t have to rely on other countries to supply our power and is less dependent on volatile and increasingly expensive global gas and oil prices. However, all this requires an awful lot of money; billions in fact. To achieve this turnaround, the government is allowing all energy companies in the next eight years to add a total of £7.6bn to household bills, which will go towards constructing the new power plants, windfarms etc. And if you are wondering where they got this figure from, it is about the same amount as we currently spend on importing gas.
The government wants energy companies to invest heavily in cleaner energy supplies but they have had to assure them that they won’t be targeted by legislation or energy bills if they do. Otherwise, such energy companies would, understandably, be unwilling to invest such vast sums of money.
The government have certain targets that they must hit, according to EU rules which are:
- To produce 30% of electricity from renewable sources by 2020
- To cut greenhouse gas emissions by 50% on 1990 levels by 2025
- To cut greenhouse gas emissions by 80% on 1990 levels by 2050
So what does all this mean for your energy bills? Basically, despite the new legislation of energy companies having to offer their customer their lowest tariff, they will go up. According to the governmental figures, energy companies currently charge about £20 extra per year to help pay for clean energy projects. Apparently this is set to rise to £95 in 2020.
Overall however, the government says that once you take into account all of the energy policies and the time it takes for the cleaner supplies to start impacting on bills, prices will actually fall on average by £94 by the year 2020. This will be due to several factors, the main one being we should be more energy efficient and less reliant on gas.
Gas prices have risen consistently over the last two years and have added £100 alone to the average household bill. And the International Energy Agency has forecast natural gas prices to rise by 40% by 2020. So even if we carried on using gas, we would be paying more and more as the years progressed. And the Committee on Climate Change agrees that bills would be higher without significant investment in clean energy.
The upshot is, something had to be done to cut emissions and to stop our reliance on natural gas which we import from other countries. By investing in clean energy now, we are paying the price in the short term and bills will be more expensive. Let’s hope the energy companies remember to put them down again when the time comes!
Source: BBC News