By Claire West
Energy bills for business electricity and domestic customers will have to at least double to make the construction of new nuclear reactors in the UK financially viable, according to reports.
Energy companies would need to achieve a wholesale price of £100 per megawatt hour — more than double the current price — to justify investment in the plants, industry sources have told The Financial Times.
A new generation of nuclear power stations forms the basis of the government’s strategy to ensure the UK has a secure and low-carbon energy supply into the future. But the cost of building the plants has increased by £3 billion since last year’s earthquake in Japan.
“If you do the maths on that, you would conclude that £100 is the number one would need to get a reasonable return,” a person close to the negotiations on the level of government support energy companies should receive to build new reactors told The Financial Times.
This week, a committee of MPs described the government’s planned energy bill, which aims to facilitate the £110 billion investment needed to replace the UK’s power plants, as so flawed that it was likely to scare off investors.
MPs have urged the government to reconsider the draft Electricity Market Reform bill over the summer to include provisions for it to underwrite the private investment required as an investment for power companies to invest.
"The government is in danger of botching its plans to boost clean energy, because the Treasury is refusing to back new contracts to deliver investment in nuclear, wind, wave and carbon capture and storage," said Tim Yeo, chair of the Energy and Climate Change Committee.
Ofgem, the energy regulator, has already warned that energy bills will rise significantly by 2012 to cover the cost of upgrading gas and electricity networks.
The £22 billion programme is aimed at overhauling the network that distributes electricity around the UK. Distribution costs typically account for around 20% of a household gas bill.
Julian Morgan, managing director of the Energy Advice Line, the UK’s leading business electricity price comparison and switching service, said it was clear that there were tough times ahead for business electricity users.
“Whatever the outcome of the government’s energy reform bill, the amount of investment required to upgrade the UK’s ageing power stations is substantial and investors will requiring end-users to cover some of those costs,“ Mr
“It is now more important than ever for small and medium-sized firms to consider their energy spend very carefully as prices are inevitably on their way up.
“This means analyzing their business electricity consumption, as well as the price they are paying and their energy contract arrangements.
“Many firms are simply throwing money away by failing to ensure they are paying the best available market tariff and locking that in on a fixed contract.
“We help businesses every day save considerable sums by searching the market to find the best deals. And we follow that up with a contract management service so that we can help firms with any problems they have during their fixed-term contracts.”