It’s a fix: Coalition plans for Britain’s energy market are likely to boost fuel poverty (City AM)

CPS Research Fellow Tony Lodge writes for City AM on the problem with the Coalition’s energy policies, including the Carbon Floor Price. 

“OVER twenty years since Britain laid the groundwork for electricity privatisation and delivered the most liberalised electricity market in the world, the coalition’s new energy “market” reforms will artificially fix the price of electricity in an effort to support more wind energy and kick-start the building of new nuclear power stations. Top-down controls will distort the marketplace, favour big companies and send our electricity bills skyward.

The market for electricity, established 20 years ago after privatisation, has already been lethally undermined. Since there is no way it can deliver the expensive decarbonisation the coalition wants, investment is now driven by central planning and subsidies, set to meet the wishes of the developers, particularly the big six energy companies.

This oligopoly, in which four large continental companies are dominant, looks set to enjoy an arm-lock on this and future governments. Prices will rise and economic growth will be stifled.

The coalition’s policy of a £200bn energy investment and ambitious green energy targets risk raising the number of UK households in fuel poverty towards 8.5m (a third of the total) by 2030. As part of a rejection of a free energy market, a new carbon price floor will be introduced next year, as well as feed-in-tariffs guaranteeing the price of electricity for future new nuclear plants and green energy such as wind.

The price floor is a tax, which will increase energy prices for both consumers and industry without guaranteeing new nuclear plants or reducing EU emissions. The carbon price floor will tax the 75 per cent (and growing) of the UK electricity-generating grid dependent on coal and gas and will help push UK energy prices higher than those in the rest of the EU. The cost of this tax will be passed on to consumers and energy intensive industries. Also, it will provide a windfall of over £1bn to existing UK nuclear operators and risks alienating other potential atomic energy investors.

The price floor also risks another dash for gas to cover the shortfall as new nuclear plants are delayed (they are already over two years behind schedule) and older coal and oil plants close. This could result in yet more dependence on imported gas to generate electricity and over 1bn tonnes of economically recoverable UK coal reserves becoming stranded as the market for home coal production collapses before new clean coal plants are ready, possibly by the mid 2020s.”

To read the full article, visit the City AM website.

Date Added: Wednesday 25th January 2012