Will EMR Mean Higher Energy Bills?
Chris Huhne, the Energy Secretary announced the Electricity Market Reform (EMR) White Paper last week and there are conflicting reports about the effect it will have on energy bills.
The electricity market reforms are designed to encourage the building of new sources of renewable energy and low carbon energy such as wind farms, tidal power stations and new nuclear plants. The Government wants to move away from fossil fuels not just because these are less polluting forms of energy generation but in order to protect consumers from fluctuating and volatile fossil fuel markets.
Mr Huhne says they need to spend £110 billion to transform the power network. The Government says the reforms to the energy market will add only £160 a year onto bills by 2030 – assuming that annual energy consumption is cut by 30% over the same period.
However, Ofgem, the energy regulator, suggests reforms will cost in the region of £200 billion by 2020 while experts at UniCredit bank think the cost will be even higher and bills could rise by around £1,000 a year to an average of £2,000.
The Government seems to be hoping that consumers will combat rising domestic and business electricity prices in the future by installing energy saving measures and insulation so that their actual energy consumption goes down. While energy bills may not go down as a result of these measures the hope is that bills won’t rise as much as they would if consumption wasn’t reduced.
The investment will be used to build more wind turbines and wave power machines but much of the investment will be needed to build new nuclear power plants. Many of the existing nuclear power stations are coming to the end of their life and the energy reform bill will guarantee a minimum price for electricity generated this way. The idea behind this is to ensure anyone investing in this form of energy generation makes a decent profit – otherwise they may not choose to invest.
But the money will not just be spent on new nuclear power stations or wind turbines. Investment is needed in new cable networks, pylons and sub-stations in order to connect wind farms and other sources of renewable energy to the national grid.
Consumer Focus said the figure of £160 a year on bills by 2030 was optimistic. The chief executive of Consumer Focus, Mike O’Connor, said “We recognise the need for reform. However, consumers can’t be expected to write a blank cheque to decarbonise electricity generation”.
There’s concern that such an increase in energy bills will push more households into fuel poverty – which occurs when a household spends more than 10% of its income on energy to keep warm. Consumer Focus says the number of households in fuel poverty is increasing and that unofficial figures show it to be 6.3million households which could rise to 12 million before long.
Rising wholesale gas and oil prices and declining North Sea stocks means as a country Britain doesn’t want to be reliant on energy imports and therefore needs to ensure its own energy security and protect itself from volatile markets. It doesn’t look as though there will ever be cheap energy again and that both domestic and business electricity prices will continue to rise. The problem is, no-one seems to be sure how much we will have to pay for it in the future.