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U.K. Utilities Blame Government Green Policies for Higher Bills

U.K. utilities said the government’s clean energy policies are behind a surge in consumer electricity bills, remarks aimed at shifting debate away from a proposal to freeze prices until 2017.

Chief executive officers from SSE Plc and RWE Npower Plc, two of the country’s six largest generators, said it’s the cost of wind and solar power along with the government’s ambition to install high-tech meters in every household that have boosted costs for consumers.

The remarks were meant at blunting the demands of Ed Miliband, who leads the opposition Labour Party, for the industry to cap the cost of energy. The average household power bill has risen 68 percent since 2008 even though the economy suffered a recession that lifted unemployment.

“It’s the great unsaid in this debate that we’re all paying for successive governments’ environmental and social policies through our bills,” SSE Chief Executive Alistair Phillips-Davies said today.

About 85 percent of SSE’s costs are outside the utility’s control, and most people don’t understand that’s the case, he said. About half of a dual fuel bill is energy bought in from global markets, a quarter is regulated costs for using and upgrading energy networks, and about 10 percent are costs from governments to fund low-carbon power and energy efficiency.

RWE’s View

“If the Labour Party can commit to reducing policy costs on household energy bills, stopping the smart meter roll-out, preventing commodity cost increases and accept that there won’t be any investment in new power stations and infrastructure, then we could freeze our prices,” Paul Massara, CEO of RWE Npower said.

Earlier today, Miliband wrote to EON SE, RWE AG, ScottishPower, Centrica Plc, EDF and SSE urging them to work with his party to “reset the energy market” to create certainty and attract investors. He said Labour would cap prices and pass laws to create a regulator that could reduce customer bills if it wins the next election, due in 2015.

“You and I know that the public have lost faith in this market,” Miliband said in the letter. “We can work together on the basis of this price freeze to make the market work in the future. Or you can reinforce in the public mind that you are part of the problem and not the solution.”

Last night, the industry highlighted concerns a government-imposed freeze would dry up ambitions to invest in new power plants, which the energy regulator Ofgem says are necessary to avoid blackouts toward the end of this decade. All except one of the U.K.’s 23 nuclear plants are due to retire by 2023.

Price Controls

“If prices were to be controlled against a background of rising costs it would simply not be economically viable for Centrica, or indeed any other energy supplier, to continue to operate and far less to meet the sizeable investment challenge that the industry is facing,” Centrica said in a statement on its website. “The impact of such a policy would be damaging for the country’s long term prosperity.”

Today, the industry focused on the impact of the government’s clean energy policies. Those include subsidies for renewable energy that are paid for by increases on customer bills. Labour has a target to take carbon produced by burning fossil fuels out of the energy industry by 2030.

“When prices go up it’s for a simple, albeit painful reason: the costs have gone up,” said Phillips-Davies from SSE. “Here’s an alternative suggestion for Ed Miliband: why doesn’t Labour commit to removing the stealth taxes from customer bills?” This would cut bills by more than 100 pounds, he said.

Capping power bills would reduce competition between utilities by paring back the incentive to invest in new power plants, said Trevor Green, head of institutional funds at Aviva Investors, which owns shares in all of the big six utilities.

“There are a few dominant players in an industry with very high barriers to entry, so price setting will just serve to remove the market entirely,” Green said in an interview. “There would be no competition, so essentially no free market, which will deter new entrants and benefits no-one.”

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