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The Energy Bill: what will it mean for consumers?

The Energy Bill will have a huge impact on where our energy comes from and how much we pay for it. So how's it going to work?

The house in human handsAfter the government finally provided details on the upcoming Energy Bill, which was once touted as the solution to the UK’s power generation conundrums, many have claimed that it does not go far enough.

What cannot be disputed is that it will definitely have an effect on consumers, with their own energy bills feeling the impact of the changes outlined by the coalition as it seeks to strike a balance between guaranteeing energy generation and boosting renewable power.

Aims of the bill

The core reason for introducing the Energy Bill is to ensure that the UK has a secure and affordable energy supply, but this needs to encompass adherence to European legislation on so-called ‘dirty’ power stations.

In a bid to meet its long-term carbon emissions targets, the coalition has pledged to shut down the country’s biggest coal-fired plants over the course of the next five years, with other nuclear power plants closing over the coming decade.

The result of this will be that the country is left with a major energy supply gap, so in order to meet emissions reduction and renewable energy targets, the coalition has recognised the need to boost the amount of energy produced by wind and nuclear power, as well as other forms of clean energy such as biomass.

A key aim of the bill is also to ensure that the UK is more self-sufficient when it comes to energy generation and supply; this will mean being less reliant on other nations to supply power and not being at the mercy of volatility and the rising costs of global gas and oil.

How will this be achieved?

This course of action is unlikely to be cheap, and so the government has introduced legislation that will enable energy companies to increase bills to the tune of £7.6 billion by 2020.

This amount – which is equal to what the UK currently spends on importing gas – will help to subsidise the creation of new power plants, windfarms and other means of cleaner and renewable energy creation.

According to the government, this will help to diversify the energy mix by increasing the amount of electricity coming from renewables from 11% today to around 30% by 2020.

As well as avoiding excessive gas import dependency, it will also support new nuclear power, carbon capture and storage commercialisation, being broadly consistent with the Committee on Climate Change’s recommendations.

Crucially, the coalition hopes it will provide certainty to investors in all generation technologies and also provide protection to consumers.

What will it mean for energy bills?

Consumers expecting an immediate decrease in their energy bills will be disappointed, as household outgoings will continue to increase.

According to the government, the £20 extra a year that energy companies charge for clean energy projects will rise to £95 in 2020.

This figure is calculated to be even higher by the Committee on Climate Change, which estimates a £110 rise, excluding £10 for energy efficiency measures.

However, a key consideration is what would happen to household outgoings if the Energy Bill was not introduced.

The government argues that its new energy policies will actually help to bring down the cost of powering and heating a home by 2020, when the savings are offset against the increases.

The Department of Energy and Climate Change calculates that policies such as ECO support (£75) and EU ETS and Carbon Price Floor carbon costs (£54) will add a total of £280 to bills.

However, measures such as the Products Policy (-£158) and the Green Deal and ECO energy efficiency (-£53) will result in savings of £373.

The result will be that household benefit to the tune of around £93 a year, as greater energy efficiency will mean people are less reliant on gas and use less energy overall.

Between March 2011 and the same month this year, Ofgem calculated that the increase in gas prices added £100 to the average bill, while the International Energy Agency has forecast natural gas prices will rise by 40 per cent by 2020.

Without significant investment in cleaner, renewable energy, household bills would rise substantially, and so the policies outlined in the Energy Bill are likely to have a positive impact on outgoings.

Does the Energy Bill go far enough?

In spite of the obvious benefits of the Energy Bill, many have argued that it either does not go far enough to help consumers, or that the coalition has failed to live up to the promises outlined before the Bill’s creation.

According to Mark Kember, CEO of the Climate Group, which represents international leaders on climate change, the long-awaited Bill represents “a missed opportunity”.

“It does not put emissions reduction at the heart of the UK’s energy policy. It does not put the UK on a long-term low-carbon, sustainable, clean energy path. The Bill is more of a grand compromise and, like all compromises, it deals more with the present and the short-term than with the future,” he added.

Meanwhile, John Walker, national chairman of the Federation of Small Businesses, said he is concerned that small firms will be left exposed to ever-increasing energy bills.

“What we really need is reform of the electricity market and investment in low carbon energy infrastructure to go hand-in-hand with radical changes in the retail energy markets,” he explained.

This, Mr Walker argued, would deliver tighter regulation of the Big Six energy companies and put in place stronger safeguards for both household and small business consumers.

Has the government kept its promise?

A slightly different stance was adopted by Green MP Caroline Lucas, who says nuclear is to blame for future energy bill increases.

Despite coalition ministers reiterating their pledge to spend no public money on new nuclear, it is “obvious” that electricity market reform has been designed to allow subsidy via the backdoor, she claimed.

“Ministers must now come clean about their plans to subsidise the nuclear industry after 2020 through the ‘Contracts for Difference’ mechanism in the Energy Bill,” Ms Lucas stated.

“Nuclear is eye-wateringly expensive and there’s a real risk that funding will be sucked away from renewables. The government must urgently ditch this obsession with nuclear power, which threatens to add a huge burden to household bills for decades to come.”

One thing is for sure – the Energy Bill will change the shape of the market and have a lasting impact on UK consumers and businesses. Exactly what that impact will be remains to be seen.