Gas and energy bills are set to rise in order to fund putting certain power stations, which would otherwise be shut, on standby. The goal of the initiative is to guard against potential blackouts in the future.
At present, opening new power plants powered by gas or coal is very unattractive given the focus on renewable energy and reducing carbon emissions.
The plan is expected to cost between £2bn and £4bn and will be funded through consumer energy bills.
Scheme expected to guarantee supply safety for this decade
As part of the plan, referred to as the “capacity market”, ministers are looking to fund power plants capable of producing 53GW of energy, the equivalent of 80% of the UK’s peak energy demand. Energy suppliers will be invited to bid for the payments and winning bidders will have to provide extra electricity when necessary.
The government has stated that the scheme should “defuse the ticking time bomb” of energy related supply risk.
Energy bills to rise
According to DECC, the capacity market will cost consumers a total of £13 per year, but will also save them £11 per year by preventing future power shortages, which would otherwise take place. As a result consumer bills will rise by £2.
DECC’s initial forecast was for consumer bills to increase by £13-14, but it revised figures after finding power spikes would lead to higher than anticipated price rises. This new analysis consequently lowered the net increase on energy bills as the capacity market is expected to help save a greater amount of money.
Davey: ‘Final piece of the jigsaw of our detailed energy security plans’
Speaking on the scheme, Energy Secretary Ed Davey said: “There was a real risk back in 2010 that an energy crunch would hit Britain in the middle of this decade and lead to damaging power cuts.
“But the excellent news is that with [this] announcement we have the final piece of the jigsaw of our detailed energy security plans and can now say with confidence that we have defused the ticking time bomb of electricity supply risks we inherited.”