The Government will raise electricity bills in an attempt to attract investors to build another nuclear power station in the West Country.
Ministers want to artificially hike up bills to make it more attractive for companies to invest in building a new power station in Oldbury, in South Gloucestershire.
The news comes as energy giant EDF revealed yesterday that it not only wants to build a new nuclear reactor at Hinkley Point in Somerset but also wants to extend the life of the reactor it currently operates there. Higher electricity bills would almost certainly guarantee a bigger income for EDF as well.
Ministers defended the move last night, saying they must increase bills now and fix them at a higher rate, otherwise energy companies would eventually raise them to an even higher level on the open market.
They also said the move was necessary to attract the £110 billion in investment needed to keep the lights on over the next two decades. But in the short-term families will end up paying for the changes – outlined in the draft Energy Bill published yesterday – even though the Government insists it will mean lower bills in the long-run.
The Western Daily Press reported in March how German companies RWE and E.ON scrapped their massive investment plans for Oldbury, in Gloucestershire, and Wylfa in North Wales, under the Horizon project.
That started a scramble to find a new consortium to bail out the development, with investors from China, Russia and Japan all said to be in the frame.
Yesterday, Energy Secretary Ed Davey outlined a new system to stabilise returns for low-carbon generators at a fixed level known as a strike price. He said the aim was to encourage a balanced portfolio of renewables, new nuclear and carbon capture and storage.
He argued: “If we don’t encourage investment in our energy infrastructure, we could see the lights going out, consumers hit by spiralling energy prices and dangerous climate change.”
Mr Davey said with or without reforms, household electricity bills were likely to increase over time, mainly because of rising fossil fuel prices.
“As a result of these reforms, electricity bills are estimated to be, on average, four per cent lower over the next two decades than they would otherwise have been.”
The Government says average household bills would be £200 higher by 2030 if they did nothing, and under the reforms the increase would be halved to £100. The cash should also improve the chances of other low-carbon projects – including the controversial £34 billion Severn Barrage – although critics accused the Government of favouring nuclear.
But Mr Davey stressed the coalition policy is not a public subsidy for new nuclear: “I have made it clear there is no blank cheque for nuclear.”
One of the reasons the German firms dropped out of Horizon was the long gap between the massive upfront investment needed, and starting to see any return on it.
Yesterday’s reforms are intended to reassure investors they will get their money back, and more, and are not subject to future changes in the market.
However, Nick Molho of WWF-UK urged the Government to provide specific financial support for the renewables sector.
“As it is, it looks like the process has been rigged for nuclear,” he said.
And the Campaign for Nuclear Disarmament said it was a missed opportunity to focus on renewable energy, with the Government forcing taxpayers to fork out on higher bills for subsidies for nuclear power.
Shadow Energy Minister Tom Greatrex said the Bill did nothing to simplify tariffs or stop vulnerable customers being ripped off. “Unless the Government gets to grips with spiralling energy bills, people will think that this Government is completely out of touch with families and pensioners struggling to make ends meet.”
GMB, the union for energy workers, said since the state had to step in to guarantee prices for return on investment, the Government should go the whole hog and deliver nuclear itself. It said the Government should re-task the Nuclear Decommissioning Authority and re-name it the Nuclear Development Authority to take over the Horizon project and bring on stream Oldbury and other nuclear power stations.