Consumers will be forced to pay higher energy bills to fund policies that simultaneously tax coal plants to the brink of closure and then pay them to stay open, the head of Britain’s biggest energy supplier has warned.
Sam Laidlaw, chief executive of British Gas owner Centrica, warned there was an “inherent paradox” in Government policies, which risked ending up being neither green nor affordable.
As part of plans to switch to greener energy, ministers last year introduced a rising carbon tax, the so-called “carbon price floor”, which charges power plants for burning fossil fuels.
The tax was intended initially to phase out the use of coal – the dirtiest fuel – in favour of more environmentally-friendly gas plants, and eventually restrict all fossil fuel plants in favour of green technologies such as wind farms and nuclear power.
The levy has the effect of pushing up wholesale power prices, costing every household about £5 last year, increasing to an estimated £32 a year by 2020.
Yet at the same time another policy, the “capacity market”, is being introduced to ensure there are enough reliable fossil fuel power plants to keep the lights on and act as back-up for intermittent renewables.
The policy was initially regarded as a way of encouraging a new “dash for gas” by aiding construction of new gas plants.
But in practice it is primarily expected to result in subsidies being paid to existing coal, gas and nuclear plants – including coal plants that were otherwise at risk of closure from the carbon tax.
In a speech on Thursday, Mr Laidlaw said it was “clear that old, dirty coal stations will be paid extra to stay online for longer” as a result of the policy.
He warned: “The cost of this will be levied on customers’ bills, alongside the cost of the carbon price floor, which is designed to encourage switching away from coal. There’s an inherent paradox here.”
The capacity market policy is likely to cost each household £14 a year on their energy bill from 2018, official estimates suggest.
Peter Atherton, energy analyst at investment bank Liberum Capital, said: “We have one set of market interventions trying to kill coal, but then we worry about the lights going out so we have another intervention trying to keep coal going. [It’s] difficult to make this stuff up.”
He estimated that coal plants could receive subsidies to the tune of £610m a year through the capacity market. Subsidies will be awarded through an auction process in early December.
Defenders of the policy say it is right to keep old coal plants running if they are cheaper than building new gas plants.
Centrica does not own any coal plants, but is hoping to secure subsidies for a new gas plant.
But Lawrence Carter, energy campaigner at Greenpeace, said: “The most influential energy boss in the country is now confirming what Greenpeace and others have been warning all along. A big chunk of these new energy hand-outs will be pocketed by coal plant operators and used to extend the lifespan of some of Europe's most polluting power stations.
“Even some of the biggest players in the energy industry think this new policy doesn't make sense. Ed Davey needs to listen to these concerns and make sure dirty coal plants don't get a penny of public money.”
Ed Matthew, director of the Energy Bill Revolution campaign group, said the use of the carbon tax was "totally illogical" as it simply went to the Treasury, and should at least be used for good purpose such as improving home energy efficiency.
A spokesman for the Department of Energy and Climate Change said: "There is no paradox. The carbon price floor and the capacity market work together to ensure we move to low carbon generation in a way that keeps the lights on at peak demand at lowest cost to the consumer."
