New Green Tax to fund Power Infrastructure

From Times Online May 31, 2010


A proposed levy on power suppliers that could add £10-20 to a typical household’s annual electricity bill is being considered by the Treasury, The Times has learnt.

Officials are attracted by the idea of an electricity tax that would help to create a fund to finance green power projects.

The tax could generate capital for the Lib-Con Government’s proposed green investment bank and is being debated within Whitehall as concern mounts over the reluctance of power companies to commit funds to new power generation projects. Within the past month, three gas-fired power stations have been suspended because the projects were uneconomic.

NM Rothschild, the investment bank, which has a close relationship with the Treasury, has proposed the levy to fund new power infrastructure. Sources close to the Treasury indicate that the proposal is based on a levy of about £2 per megawatt hour on the wholesale price of electricity, which is currently about £45 per mwh.
However, the levy inevitably would be passed on to customers, pushing up the average annual dual fuel household bill of £1,000 a year by an estimated £10 to £20, at a time when household income is under pressure.

A raft of subsidies designed to encourage households to switch to green heating and electricity sources has already started to force up bills.

National Energy Action, a charity that aims to wipe out fuel poverty, recently expressed alarm that additional levies and high fuel costs were forcing up consumer bills.

Alarm bells have begun to ring as utilities delay new power generation schemes, intended to replace the planned closure of elderly and obsolete coal and oil-fired power stations.

Scottish & Southern has pushed back by two years to 2015 the expected opening of an 870 megawatt gas-fired power station in Wales and E.ON has suspended its final investment decision for a 1,200 megawatt gas-fired station in Derbyshire. At Kingsnorth in Kent, where E.ON has to close a coal-fired station because of European emissions controls, the expected opening of replacement plant is delayed until 2016. The German utility yesterday blamed the economic downturn for wrecking its investment plans. Electricity consumption in Britain fell by 7 per cent last year and E.ON and other utilities are digging in their heels over the harsh economics of fully replacing Britain’s ageing power stations.

“Britain’s power grid was gold-plated and up until now we have had spare capacity, but you are not going to see like-for-like replacement unless market conditions improve,” an E.ON spokesman said. “If you are trying to make an investment at a time when there are very low power prices, you don’t get very far.”

The Government wants a third of Britain’s power to come from renewables but weakening enthusiasm among utilities for building conventional fossil fuel plants is highlighting the greater burden of financing more expensive nuclear and renewable power projects.