November 26, 2012 by Nash Riggins
The UK government has finally published details of the long-awaited Energy Bill that will shape the nation’s power infrastructure for decades to come – and it’s looking to be very expensive for the UK’s already overburdened domestic energy customers.
The Department for Energy and Climate Change (DECC) released details of the plan it hopes will revitalise electricity generation in the UK on Thursday night, with the actual legislation to be published sometime this week. Broadly speaking, the Energy Bill is expected to allow energy companies to charge households an extra £7.6bn for their energy in order to compensate for the construction of a new, low-carbon electricity infrastructure. In addition, the Bill allows for the decision on setting carbon emission targets for 2030 to be delayed until 2016 – conveniently after the upcoming general election.
In essence, the Bill’s prerogatives stem from the government’s desire to secure an affordable energy supply for domestic customers. These looming infrastructure improvements will fall into line with obligatory EU legislation regarding dirty power stations, and is simultaneously expected to help the Coalition government meet its long-term carbon emissions targets.
In order to do this, the government is expected to close many of the UK’s coal plants within the next 5 years, as well as several aging nuclear power plants in the next 10-15 years. Subsequently, the UK will be forced to fill a gap in its electricity generation by establishing new wind and nuclear power stations, as well as long-term renewable investments.
Unsurprisingly, filling this gap will cost a substantial amount of money – and in the end, it will be domestic energy customers that will pay dearly for these improvements.
First and foremost, the government will look to energy companies in order to finance the improvements in infrastructure – this makes sense, as said suppliers most directly maintain the national grid as it currently stands. Yet in order to compensate energy companies for these long-term investments, Westminster’s new Energy Bill is expected to allow those same energy suppliers to initiate a domestic price hike of £7.6bn within the next 8 years. Apparent happenstance dictates that this is around the same amount that the UK currently spends on importing natural gas.
More prevalent to customers is the estimation released this week by the Advisory Committee on Climate Change, who has asserted that this £7.6bn allowance will effectively increase the average household energy bill by around £110. The DECC suggests a slightly lower estimate of £95 per household. That being said, Energy Secretary Ed Davey has casually dismissed these concerns as “rubbish”, and maintains that this increase is a small price to pay in order to achieve energy independence.
True enough, the UK is undeniably in need of revamps to its ageing electrical infrastructure – yet critics are justifiably calling the move to shift natural gas out of the nation’s power regimen a substantial risk. In passing this Energy Bill, Ed Davey and the Liberal Democrats are effectively seeking to increase the UK’s renewable electricity generation up to 30% by 2030 – a move that many believe is merely being pursued in order to spite Chancellor George Osborne, who is keen to reinvest in natural gas as a cheaper long-term power supply.
In fact, Mr Osborne has publicly stated that the UK should avoid making such a massive investment in infrastructure when competitor economies are steering in the opposite direction – and he may be right. Yet without the gift of foresight, all that can be said for now is that average UK homeowners have become the pawns of an internal struggle being fought by London’s career politicians – who appear more than happy to mandate hikes in energy bills just to ‘prove a point’ to one another.
According to OFGEM, 10% of each customer’s annual electricity bill already goes straight to Westminster’s carbon-cutting environmental schemes – with another 18% going to costs of distribution by way of an outdated national grid. By phasing out a large chunk of the UK’s energy generators, said distribution cost is bound to increase exponentially in the run to 2030. Meanwhile, the implementation of these stricter environmental caveats as outlined in the DECC’s Energy Bill will no doubt force a substantial decrease in the percentage of suppliers’ profit margin being produced from household energy bills. In short, an energy bill increase of £110 per household may turn out to be quite a measly estimate, should the proposal go ahead as planned.
At this point, it’s difficult to assess to what degree the UK government sympathises with the plight of average homeowners. By year’s end, the majority of UK energy customers will have been exposed to annual dual fuel increases that range from 6-11% – which is being tacked onto an average increase of 19% from 2011.
Unfortunately, the government has failed to respond to these concerns accordingly – instead choosing to pass trivially ineffective mandates dictating that suppliers scale back their product lines. In fact, the market reform proposal that Mr Davey brought forth earlier this week will accomplish little, save to erode industry competition by giving suppliers an excuse to raise the minimum rate of their pricing schemes. Once Mr Davey’s reforms have been put into effect, customers can expect to see a gradual increase in the amount they currently pay for energy – and now, Mr Davey has given energy suppliers the go-ahead to charge customers an additional £110 per year by 2020.
In effect, energy customers will be paying off the loans of suppliers that truly may never see any dividends from their investments. On top of this realisation, the UK government has yet to act on the EU’s desire to increase the discounted VAT in which UK customers currently pay on their energy by 15%. If Ed Davey truly wishes to put a dent in the detrimental pinch with which UK homeowners are currently feeling, putting a stop to this likely increase would be the best place to start.
Investing in renewable energy is extremely vital to the stability of the UK’s future energy generation regimen; however those changes can only be made in line with economic decisions that are based upon the will of a free market that must inevitably learn to defend the plight of hard-hit energy customers. Forcing energy suppliers to invest in renewable energy before they choose to do so will substantially harm customers in the short-to-mid-term – whereas allowing for a national and inevitable progression within the industry would bring about the same result, without immediately slapping consumers with a ridiculously-sized bill. With any luck, the DECC will recognise the antagonising impact that its new legislature will have on average UK citizens, and amend its proposal accordingly. Unfortunately, hindsight suggests that won’t happen.