Tax Payers Alliance Energy view

How the government’s energy policies will benefit a rich sheikh at the expense of the poor

The Spectator
 July 2013 21:33

Matthew Sinclair

Today Ed Davey launched the London Array, an enormous offshore wind farm, and the Prime Minister posed for pictures with a sheikh whose sovereign wealth fund put up part of the money to finance it. But HH Sheikh Abduhall Bin Zayed is not backing this project out of the goodness of his heart. The Emiratis aim to make a return out of the lavish subsidies on offer.

Just last week, the Government announced that from next year offshore wind will get a guaranteed price – under the new ‘contracts for difference’ in the Energy Bill – of £155 /MWh. Electricity currently sells on the wholesale market for about £50 /MWh. Offshore wind therefore gets three times the price of conventional energy. The London Array will presumably be supported under the earlier Renewables Obligation scheme but the level of subsidy is similar.

How exactly have we got to a world in which Ministers are proud of signing a deal where poor families pay three times as much for their energy and the money is handed over in fat profits to an Emirati sheikhdom?

Our energy policy is a sorry mess. Regulations are forcing the closure of old coal power plants and the Government is insisting that they are replaced in large part with renewable energy, which comes at a ruinous cost. Liberum Capital estimates that over £160 billion needs to be invested over the rest of this decade to meet the targets and then another £215 billion in the next decade.

Liberum estimate that will increase total power costs by 29 per cent by 2020 and then 100 per cent by 2030. If gas prices rise at a similar rate too – and given they are substitutes any sharp divergence in gas and electricity prices would make a mockery of the decarbonisation targets – then an average family will be paying the best part of £2,000 by the end of this decade. The theory that they will cover those costs by drastically improving the energy efficiency of their homes seems more and more ridiculous as the Green Deal unravels before our eyes.

When politicians want to show they are concerned about how much people are paying, they promise to do something about the dastardly energy companies and their profits. For the Conservatives this meant the pledge to put people on lower tariffs. For Labour it was the pledge to replace the energy market regulator Ofgem. But all of that is just posing.

If you require companies to invest £376 billion – far more than they would otherwise – then they need to make a return on that investment. They need to make more profit. Otherwise why would they invest?

Politicians know that. They know that they are legislating for increasing profits in the energy sector and increasing prices for households and businesses to cover the bill. Only an MP could have the chutzpah to pretend they are playing hardball with the energy companies at the same time as they promise eye-watering subsidies to secure investment in renewables and new nuclear.

Sadly this is one of those issues where all three of the main political parties in Westminster agree. But we can overturn that the same way that we secured the first cut in beer tax since the 1950s, by showing the parties that this is a critical opportunity to win over sceptical voters by easing the burden on families and businesses.

Matthew Sinclair is chief executive of the TaxPayers’ Alliance. You can find out how much energy policies are costing you at <> .