Energy bills will remain high

Energy bills will remain significantly higher for at least the next six years as gasfired power stations age and as the construction of new nuclear plants is delayed, a new analysis has suggested.

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6 Jun 2024
Business

Energy bills will remain high

Energy bills will remain significantly higher for at least the next six years as gasfired power stations age and as the construction of new nuclear plants is delayed, a new analysis has suggested.

The price paid to electricity generators to maintain a stable supply will be at a minimum of E51 per kilowatt annually until the end of the decade, Cornwall

Insight has forecast, substantially more than the present rate of E18 per kilowatt.

Energy bills will remain significantly higher for at least the next six years as gasfired power stations age and as the construction of new nuclear plants is delayed, a new analysis has suggested.

The price paid to electricity generators to maintain a stable supply will be at a minimum of E51 per kilowatt annually until the end of the decade, Cornwall

Insight has forecast, substantially more than the present rate of E18 per kilowatt.

The capacity market scheme pays conventional power plants subsidies to remain open as a back-up for renewable suppliers. It buys most of the energy needed four years in advance.

Prices were E18 per kilowatt in 2020 for the 2024-25 period, but hit a record E65 in this year's auction for power due to be delivered in 2027-28. Cornwall Insight expects the price to be E62 for 2028-29 and E56.50 for the following year.

High prices will come as existing gas and nuclear power plants become less reliable and as their running hours decrease, requiring elevated prices in the capacity market to cover their costs. There are 32 gas-fired plants in the UK, but the vast majority were commissioned at about the turn of the century and up to half could be mothballed by 2035, according to government estimates. Meanwhile, four of the country's five nuclear power stations are due to be decommissioned by 2028.

A lack of certainty over when Hinkley Point C, the only new nuclear plant under construction in Britain, will start generating power will contribute further to keeping prices high, the consultancy said.

In January, EDF, the French state-backed company that is developing the Hinkley Point site in Somerset, announced that the 3.2-gigawatt power station could take until 2031 to come on line, up to six years behind an initial deadline

Tom Faulkner, head of assets and infrastructure and networks at Cornwall Insight, said that while solutions such as battery storage could meet some of the increasing power demand, they could be expensive and generators needed higher payouts to cover their costs. "At the same time, refurbishing the ageing plants to continue to provide the power comes with its own costs, costs that ultimately land at the feet of consumers," he said, adding that to encourage investment, capacity market prices may need to stay higher for longer.

 

A spokesman for the Department for Energy Security and Net Zero said: "We take no chances when it comes to the security of the UK's electricity supply and through the capacity market we are ensuring that we are coping with peaks in demand in the most cost-effective way possible.

"By backing domestic oil and gas, ending the stop-start approach to nuclear and increasing our renewables supply from 7 per cent of all electricity in 2010 to nearly half today, we are enhancing the country's energy security and building more capacity to adequately deal with spikes in demand."

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