David Prosser: The soaring cost of making sure the lights don't go out

Outlook: It is not at all clear the firms in the business of building nuclear power plants are yet persuaded they want to invest the sums required in Britain
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The Independent Online

Centrica's warning yesterday could not have been much clearer. Unless we see a dramatic fall in prices on the wholesale energy markets in the next few weeks – unlikely – households will see a round of bill increases before the end of the year.

That's the bad news. And here's the really bad news: irrespective of what happens to wholesale energy prices over the years ahead, your bills are going to get even more expensive as Britain strives to meet its climate-change targets.

So much so that the Committee on Climate Change, the independent governmental advisory panel, now thinks Britain should be rethinking the current plan for changing its energy mix over the next two decades.

In particular, the panel said yesterday, Britain needs to scale back expensive investments in offshore wind and build more nuclear reactors instead – the latter being a cheaper route to low-carbon energy.

The economics of that recommendation make sense, but there are a couple of problems. First, nuclear power is not a renewable source of energy, which will force the Government to work even harder not to break Britain's promise to derive 15 per cent of energy for power, heat and transport from renewables by 2020.

Second – and potentially even more problematic – it is not at all clear that the few companies in the business of building nuclear power plants are yet persuaded they want to invest the sums required for our existing programme of expansion, let alone an even more ambitious schedule of works.

That was true even before the awful disaster that struck Japan this year. But post-Fukushima, the challenges are more demanding still. In Britain, our top inspector has been asked to review the safety of nuclear technology – at the least, the inquiry adds to the uncertainties confronting those considering huge investments. In Germany, home to RWE and EON, two of the would-be builders of Britain's plants, Green politicians have such power that the country's nuclear industry looks set to grind to a halt.

Britain is not alone in facing these problems, but it is unique in having to manage the transition to low-carbon technologies at the same time as a whole generation of ageing power plants comes to the end of their shelf life.

The danger is that we fall between two stools: that in 2020 we discover in trying tobalance both these demands, we have neither hit our renewables target nor replaced enough power-generation capacity to meet the country's needs.

If not nuclear, then what? Well, assuming we can find other ways to hit the 15 per cent quota, gas – back to Centrica, then – is the easiest way to make up the shortfall. Still, let's hope we can still afford it by then. With Germany getting away from nuclear and Asia buying up more supplies from Europe, the price is only going to head in one direction in the years ahead.

Three years ago, when home-energy bills hit a record high, one in five households in Britain was deemed to be living in fuel poverty – unable to afford energy bills. That's a shocking statistic for a wealthy nation, but it is a high that may be quickly surpassed in the years ahead.

A year isn't a long enough time in politics

Happy anniversary. A year to the day since the Liberal Democrats dropped election campaign objections to George Osborne's deficit-reduction plans in order to go into coalition government, the likes of Danny Alexander will no doubt argue that decision has been proved right. Despite fears that coalition politics might increase the uncertainties about Britain's ability to get on top of its public finances, the Chancellor, aided by the tough approach to spending departments taken by his chief secretary, can boast of borrowing costs that are only marginally higher than those of Germany.

Compare Britain's situation to that of Greece, the Coalition will no doubt say yet again today, where the failure to address borrowing led to economic and financialdisaster. Helpfully, the Greeks are going through another crisis just now, lending a little more credibility to the Government's arguments.

So far so good. But the key to restoring Britain's public finances in the medium and longer term are in a return to strong economic growth, rather than the austerity measures of the past year. Debt has not even begun to fall yet.

On this test, the Coalition's story is less happy: its enemies – in the Labour Party and in parts of the economics community – warned that cutting spending and squeezing household incomes was unlikely to be conducive to sustained economic recovery. So it is proving: the recovery is faltering and forecasters, whether supportive of the Chancellor's strategy or not, are falling over themselves to cut their expectations of GDP growth this year and next.

Mr Osborne's current attack line of choice when Labour point this out is that had they won power, the Opposition would have made cuts almost as severe as the Government's. That may be the case, but if so it rather undermines the Chancellor's argument that only his plans would give Britain's creditors the confidence to extend us the low borrowing costs we s enjoy.

The jury is out, in other words. Unless the economy begins to move closer to the economic growth targets on which Mr Osborne's plans are predicated, the doubts about his strategy will grow. That would leave the Liberal Democrats open to the challenge of having switched horses, in terms of economic policy, at the last minute to secure power.

The implications are political, too. Leaving aside self-interest, the Conservatives and the Liberal Democrats must make the Coalition work because its collapse would leave Britain vulnerable to the sort of uncertainty Mr Osborne warned would be so disastrous last May.