Energy Bill to create 'low carbon economy', says Davey
Energy minister Ed Davey has unveiled the government's much-trailed Energy Bill, setting out the roadmap for the UK's switch to "a low-carbon economy".
Energy firms can increase the "green" levy from £3bn to £7.6bn a year by 2020, potentially increasing household bills by £100.
But big, energy-intensive companies could be exempt from the extra costs of the switch to renewable energy.
There are also proposals for financial incentives to reduce energy demand.
The "transformation" will cost the UK £110bn over ten years, Mr Davey said.
He told MPs: "Britain's energy sector is embarking on a period of exceptional renewal and expansion.
"The scale of the investment required is huge, representing close to half the UK's total infrastructure investment pipeline."
The government's plan formed the "biggest transformation of Britain's electricity market since privatisation," he said.
Measures proposed in the Bill and consultations include:
- Household energy bills to rise £100 on average by 2020
- "Green" levy charged by energy firms to rise from £3bn to £7.6bn
- Switch to clean energy to cost £110bn over ten years
- Bill aims to encourage investment in low-carbon power production
- Energy-intensive companies may be exempt from additional charges
- Possible financial incentives to reduce energy consumption
Mr Davey said government policy was "designed specifically to reduce consumer bills", arguing that without a move to renewable energy, bills would be higher because of a reliance on expensive and volatile gas prices.
The government has unveiled plans to exempt some of Britain's biggest industries from charges for clean electricity.
The Energy Bill confirms that households will be expected to pay about £100 a year on average to get more power from nuclear and renewables.
But it looks as though energy intensive firms won't have to pay the extra charges. It's feared that if their energy bills rise too high, they'll move manufacturing jobs abroad.
The move may prove controversial with consumer groups.
The Bill confirms that households would provide £7.6bn of subsidy to nuclear and renewables by 2020 to keep the lights on and to meet targets on reducing emissions of greenhouse gases.
The government says the investment will shield the UK from volatile gas prices and force down costs in the long run.
But ministers have also announced that some of biggest industrial polluters in the UK - like steel and cement - may not be asked to pay extra. These global firms threaten to take their jobs elsewhere if power bills rise.
The government has recognised that if you are trying to cut global emissions of carbon, it's futile driving away firms to pollute somewhere else. But many households may wonder why they're being forced to pay extra whilst big firms are not.
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The Energy Bill aims to move the UK's energy production from a dependence on fossil fuels to a more diverse mix of energy sources, such as wind, nuclear and biomass.
This is to fill the energy gap from closing a number of coal and nuclear power stations over the next two decades, and to meet the government's carbon dioxide emissions targets.
By allowing energy companies to charge more, the government hopes they will have the confidence to invest the huge sums of money that are needed to build renewable energy infrastructure such as windfarms.
But the opposition said that investment in renewable energy had fallen under the coalition.
"The reason that's happened is because of the uncertainty the government has created - that's why firms have put investment on hold, or scrapped it altogether," said shadow energy and climate change secretary Caroline Flint.
She added that the absence of a carbon cap for the energy sector for 2030 further undermined investment in renewables.Exemptions
But in a consultation paper published alongside the Bill, Mr Davey said energy-intensive industries, such as steel and cement producers, would be exempt from additional costs arising from measures to encourage investment in new low-carbon production.
"Decarbonisation should not mean deindustrialisation", Mr Davey said.
"The transition to the low carbon economy will depend on products made by energy intensive industries - a wind turbine for example needing steel, cement and high-tech textiles.
"This exemption will ensure the UK retains the industrial capacity to support a low carbon economy."
Without the exemption, the government fears big companies would cut jobs and relocate abroad.Reducing demand
The government proposals to reduce electricity demand include financial incentives for consumers and businesses alike.
For example, firms could be paid for each kilowatt-hour they save as a result of taking energy-reduction measures, such as low-energy lighting.
Householders and businesses could be given discounts and incentives to replace old equipment with more energy-efficient versions.
The government believes a 10% reduction in electricity demand could save £4bn by 2030.
But research by management consultancy McKinsey suggests there is the potential to reduce demand by as much as 26%, equivalent to 92 terawatt-hours, or the electricity generated by nine power stations in one year.
Audrey Gallacher, director of energy at Consumer Focus, said: "The government's commitment to reduce energy demand through incentives for consumers and businesses is welcome.
"But it will come at a cost - which again will be passed onto customers."