New power plants could put bills up

Energy bills could rise by hundreds of pounds under plans for the construction of a new generation of power plants unveiled by the Government.

But ministers insisted that prices would have risen anyway, and the estimated £160 average hike in annual bills as a result of the new proposals is 4% less than would happen if nothing changed.

Energy Secretary Chris Huhne said private-sector investment of £110 billion in new power stations and grid upgrades is needed over the next decade to replace ageing plants, to hit the UK's climate change targets and to ensure that the lights do not go out.

He set out a four-pronged approach to ensure that investment goes into low-carbon energy from renewables, nuclear and cleaner fossil fuels, and to encourage new providers to enter a market currently dominated by six big companies.

The proposals, which are subject to consultation ahead of a White Paper in March and legislation to be completed by 2012, involve: Increasing the cost of fossil fuel-based energy by pushing up the carbon price to between £20 and £40 a tonne by 2020; top-up payments to guarantee revenues for low-carbon electricity even if the wholesale price falls.

Additional financial support for the construction of reserve plants to provide a "safety cushion" as Britain increasingly relies on electricity from intermittent sources such as wind; and a cap on CO2 emissions of 450-600 grammes per kilowatt/hour generated, which should ensure that all future coal-powered plants use carbon capture and storage (CCS) technology.

Unveiling what he described as the biggest reform of the UK's electricity market since the privatisations of the 1980s, Mr Huhne acknowledged that bills would get bigger, but insisted that in the long run the changes will protect consumers' interests.

"While prices will rise in the medium term, the additional impact of the reform packages will be small, but by 2030 consumer bills will be lower than if we did not reform the market," he said in a statement to the House of Commons. He warned MPs that "without action, we will face a real and growing threat to the security of our supply".

Demand for electricity could double by 2050, said Mr Huhne. But a quarter of the UK's power plants need to be replaced over the next 10 years, and EU targets require Britain to increase the proportion of electricity coming from renewable sources from 7% to 30% by 2020.

"We have a once-in-a-generation chance to rebuild our energy market, rebuild investor confidence and rebuild our power stations," said Mr Huhne, adding: "Like privatisation before it, this will be a seismic shift, securing investment in cleaner, greener power. And delivering secure, affordable and low-carbon energy for decades to come."