Consumers could pay up to £38 more for their energy next year after the government accelerated plans to prevent electricity shortages.
Britain is facing the risk of a power deficit over the next few winters as ageing coal and nuclear power stations are retired from service.
The government announced plans yesterday to bring forward a new system, under which plant owners will be paid to supply back-up electricity at short notice. According to documents published by the energy department, the cost of the scheme will be £2 billion to £3 billion, enough to push up bills by £28 to £38 per household.
The “capacity auction” scheme was to be introduced for the winter of 2018-19, but recent coal plant closures have forced the government to start a year early, from the winter of 2017.
David Oliver, senior energy consultant at Inenco, welcomed the reforms, which he said were “good news for security of supply”, but warned that they would hit consumers in the pocket.
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“More contracts will mean higher costs, and charges will hit consumer bills a year earlier than planned,” he said. “The higher penalties for failure to deliver will mean generators factor-in risk premiums in their bids, which also will push up prices.
“We also could see older plants choosing not to participate because of the potential liabilities of failing to deliver contracted capacity.”
The announcement, during media coverage of local election results, provoked accusations that the government was seeking to bury bad news.
The capacity auction scheme will take effect when demand cannot be met, for example when there is insufficient wind to generate power from wind farms or when conventional plants are forced to close by technical problems. Producers of renewable energy provided 25 per cent of the country’s electricity in 2015 and the proportion is rising.
A statement from the energy department said that the plan would “better safeguard our energy security so we can protect families and businesses from spikes in energy costs in the future”. The department’s assessment said that the net effect of the scheme on energy bills would be more complex because the capacity auction would reduce wholesale power prices and prevent sudden price spikes, which also feed into bills.
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Mr Oliver said: “It remains to be seen whether these changes will help to secure the much-needed investment in new generation to justify the additional cost.”
Catherine Mitchell, professor of energy policy at the University of Exeter, criticised the changes as “short-term meddling”. The capacity market system “inherently favours fossil fuel generation”, which has the capability to switch on and off easily, she said.
Critics say that the scheme encourages polluting diesel generators at the expense of cleaner forms of power.
Power capacity auctions will be held on September 1 to ensure back-up supplies for winter next year. The changes will mean tougher penalties for companies that win capacity market agreements but then fail to honour them.