Energy market reform expected to lead to higher household fuel bills

• Chris Huhne rubbishes predictions of £500-a-year average rise by 2030
• Campaigners say proposals will plunge more families into fuel poverty

The government will reignite the row over soaring energy bills on Tuesday when it unveils a long-awaited electricity market reform package that will boost nuclear power but hit householders with another major increase in costs.

Ministers insist the planned shake-up will move the UK away from fossil fuels and the kind of market instability that led to the announcement last Friday of an increase of up to 18% in some British Gas bills.

Ofgem, the industry regulator, has previously estimated that the average household bill could rise by £500 annually by 2030, while Cambridge academics have claimed that Britain's energy costs could become the highest in Europe.

Chris Huhne, the energy and climate change secretary, on Sunday called the prediction "absolute nonsense", saying that it was based on "rubbish" calculations, which did not take into account the eventual savings that different energy sources would bring. "The reality is that we have some of the lowest energy prices [in Europe] and we can get them even lower," he told the BBC's Andrew Marr Show.

But campaigners against fuel poverty – defined as when more than 10% of household income is spent on heating – have already warned that the number of households facing such a situation in Britain could soon rise from 5.5m to more than 6m in the wake of the latest price rises. They also claim that government plans will make the problem worse.

National Energy Action said: "The energy market reform document ... is likely to indicate that further increases in energy prices are on the horizon to fund additional measures proposed by government."

The government's white paper will propose providing a fixed price above the market value for electricity generated from nuclear power and windfarms, via a floor on the carbon price from 2013.

There will also be further details on a carbon emissions performance standard, a hedging mechanism called "contracts for difference" and a "capacity mechanism" for ensuring utilities can be rewarded for keeping excess power on standby for when the wind does not blow.

The Department of Energy and Climate Change (DECC) is struggling to reconcile industry differences on some of these measures and there are fears that the process may be less advanced than many would want.

Tim Yeo, chairman of the energy select committee, told the Guardian that decisions were "urgently needed" but said that he feared there would be a lack of concrete initiatives. "The danger is that we are given more of a green [consultative] paper than a white paper and that would just promote uncertainty and leave us longer dependent on volatile gas imports," he said.

But the DECC said it was doing all it could to increase the UK's energy security while reducing CO2 emissions.

"The measures included in the EMR are cheaper than the cost of doing nothing, not replacing power stations and infrastructure. We believe annual household bills could increase by £200 by 2030, or even £160," said a DECC spokesman.

British Gas caused a storm on Friday by raising its electricity bills by an average of 18% and gas bills by 16% but other utilities are expected to follow suit as wholesale energy costs continue to soar.

• This article was amended on 11 July 2011. In the original, the final paragraph gave British Gas's recent rises in electricity and gas bills as averaging £18 and and £16 respectively. This has been corrected.


Terry Macalister

The GuardianTramp

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