Huhne claims higher bills now will pay for future energy security

Chris Huhne, the Energy Secretary, has been fuming at reports that his flagship policy, the Electricity Market Reform (EMR) White Paper, will lead to the highest bills in Europe. "Absolute nonsense", these figures are based on "rubbish" information, he claims.

But the White Paper, released on Tuesday, will certainly lead to at least a short-term increase in electricity prices. Already rocked by a series of price hikes, such as British Gas's announcement of an 18 per cent surge in bills earlier this month, cash-strapped consumers can be forgiven for feeling at the mercy of the avarice of big utilities.

However, reform is vital if bills are to ever remain stable. For too long, utilities have not had the proper incentives to invest in low-carbon electricity-producing technologies, from solar power to nuclear.

The result, as fossil fuel prices keep soaring, and the availability of alternative sources of electricity generation remains limited, is that the utilities charge ever more and the environmental impact increases.

The EMR has four key proposals. First, it reiterates a commitment by the Government to a "carbon price floor", whereby an amount is charged for the amount of carbon produced which pushes utilities towards cleaner power generation.

Second, there is an emissions performance standard that limits the amount of carbon produced to 450g per tonne, which effectively rules out coal stations in the coming years.

Then, there are contracts for difference, which means that utilities are paid by or have to pay a central agency if electricity prices fall below or above a certain price index. This, it is hoped, will help to stabilise electricity prices.

Finally, there is a capacity mechanism, which will ensure that there is always enough electricity available to the utilities to avoid blackouts.

There are then a series of carrots and sticks to move utility companies to cleaner technologies. But, this, involves an estimated £110bn of investment, which the consumer will have to pay for over the coming years.

The pay-off is that once this initial spike is overcome, electricity generation should become cheaper as companies understand how to get the best out of what should already be relatively inexpensive fuel sources.

Huhne's team has estimated that all this should only lead to a 1 per cent rise in bills, while by 2030 the typical customer will be paying £40 less than if the current system were in place.

A Whitehall source agrees that bills are sure to be lower than under the status quo some time in the 2020s. However, the source points out that to achieve Huhne's claims, the Government has to get right the mix of low-carbon fuels that are used to achieve those figures.

"We can't afford hare-brained schemes," he argues. This means an emphasis on nuclear, which is a proven source of fuel in which energy companies have enough experience to find ways to drive down costs, rather than currently less efficient systems such as wind power.

The emissions standard will almost certainly see coal die out over the next two to three years. Although not applied retrospectively – as the Norton Rose legal group points out it is important for investors that they are not hit on existing projects, so that they feel secure ploughing their billions into a new wave of power stations – it means no new ones will be built.

The price floor will inevitably make existing production unaffordable, though, and the Government will have to find ways of encouraging utilities not to suddenly close down coal stations. An industry source claims government officials are cooking up a plan that will encourage a gradual, rather than sudden, transition from coal.

The UK could find itself in the midst of a power shortage many years before it had built a low-carbon electricity market if coal stations packed up overnight.

Start your day with The Independent, sign up for daily news emails
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'