Npower says green policies will mean higher energy bills

RWE npower became the first of the big six power suppliers publicly to warn that the government’s renewable energy policies will cost consumers more, saying energy bills would rise by more than 19 per cent by the end of the decade.

The intervention mounts a forceful challenge to the government, which has claimed that bills will actually fall thanks to coalition energy measures.

In a report published last week, npower said the average household energy bill could rise by £240 to £1,487 by 2020, driven by the impact of investment in new infrastructure and the cost of improving energy efficiency in people’s homes.

The UK will invest billions of pounds in new power plants and transmission networks during the coming years due to government measures intended to shift the country to a low-carbon economy and keep the lights on. Large amounts of money will also be poured into improving the UK’s cold and draughty housing stock.

But there is mounting concern in the power industry that the costs of these policies, combined with other measures such as the carbon floor price and big subsidies for renewable energy, will be much higher than government estimates and will have a sizeable impact on what average consumers pay for their gas and electricity.

The npower decision also represents an attempt counter accusations that it is making bumper profits on the backs of hard-pressed consumers.

Greg Barker, minister for energy and climate change, said rising global gas prices, not green policies, were pushing up bills. He said that in 2020, bills would be £166 less than they would be “if we left ourselves exposed to global price shocks, left our homes leaking energy, and left future generations to deal with climate change”.

An important target of criticism has been the Energy Company Obligation programme, ECO, launched in January this year, which obliges the big six to improve insulation in people’s houses and to install better heating, especially in low income households. The government has said ECO will add £53 to a typical dual fuel bill. But npower said it would add £88.

The company also said the cost of supporting low carbon technologies would increase from £12 on the bill in 2007 to £82 in 2020, while the cost of carbon would increase by £45 during the same period.

It also drew attention to the problem of increasing transport costs – the payments energy suppliers must make to the National Grid for high-voltage transmission and to local electricity and gas distribution companies – which have also been rising in a manner that could affect bills.

They could increase even more sharply as billions are invested in power networks to connect up the new generation of offshore wind farms. Npower said transportation costs will add an additional £114 to the average domestic bill by 2020.