Isra-Mart srl:Huhne dismisses energy price hike fears

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Energy and Climate Change Secretary Chris Huhne yesterday rejected suggestions the government's proposed electricity market reforms will lead to steep increases in energy bills, insisting the proposals will ensure British consumers enjoy lower energy bills than would otherwise be the case.

The government's proposed reforms are intended to drive £110bn of investment in low carbon energy infrastructure over the next decade prompting fears that energy bills will have to rise significantly to help cover the costs.

According to government projections, the reforms will lead to an increase in average domestic electricity bills of £160 a year in real terms by 2030, but that represents a £30 saving compared to the level bills would have reached under the current market arrangement.

Huhne said that even in the medium term government modeling suggested the combination of energy efficiency measures and investment in alternative energy sources meant energy bills would be just one per cent higher as a result of the reforms by 2020.

He also argued that any increase in projected global oil prices would ensure that consumers would enjoy reduced bills at an earlier date as a result of the investment in low carbon energy sources.

"By 2020 the overall impact on household bills is to add one per cent, but that was assuming an oil prices and corresponding gas price of $80 a barrel which quite a lot of people thought was over optimistic," he said, adding that the Office of Budget Responsibility had subsequently forecast an oil price of $90 a barrel by 2020 while the US administration is forecasting prices of $108 a barrel.

"Anything above $100 a barrel and British consumers are quids in," Huhne said. "If we go above $100 a barrel in the period up to 2020 this whole shift to energy saving and low carbon electricity generation actually means the British consumers are making money by comparison with what would happen otherwise."

He challenged those accusing the government of backing reforms that will increase energy prices to disclose their own projections for oil prices.

"If someone comes and says this is going to cost consumers a lot of money, what is there assumed oil price, what is their assumed gas price?" he asked. "Do you really know better than the IEA which is projecting $100 a barrel oil price which will be break even for us? Fine, maybe you do. But I certainly am not confident enough in our forecast."

He added that regardless of what happens to oil prices over the next decade, the shift towards lower carbon generation "will provide a real insurance for British consumers in a very volatile world".