The government's energy market reforms, announced by Energy Secretary Chris Huhne, are set to increase average annual household electricity bills by between £4 and £28 by 2016, according to Treasury figures. However, costs are expected to fall by up to £48 by 2030 once new low-carbon plants are operational.
The reforms include a higher minimum carbon price, guaranteed prices for low-carbon energy investors, payments for reserve capacity, and a ban on new dirty power stations. The measures aim to attract £100bn of investment in new power stations and grid connections over the next decade, with a focus on low-carbon generation.
EDF, which plans to invest £20bn with Centrica in four new nuclear reactors, welcomed the proposals as a 'landmark'. Huhne argued the guaranteed green energy price would boost competition and that capacity payments would incentivise energy-saving behaviour.
However, Treasury analysis shows the poorest households will be hit hardest. The bottom 20% of earners could see up to 0.3% extra of spending allocated to electricity by 2020, compared to 0.07% for the richest 10%. Single pensioners face the largest reduction in spending power, up to 0.37%.
Huhne insisted helping the poorest remains a priority, pointing to insulation schemes to cut energy use. But critics question whether market mechanisms are the fairest way to achieve climate goals, especially given the Liberal Democrats' progressive stance on other issues like student fees.
