Bills will soar for UK power revamp

But Ministers insisted yesterday that prices would have risen anyway, and the estimated 160 average hike in annual bills is 4 per cent less than would happen if nothing changed.

Energy Secretary Chris Huhne said private-sector investment of 110bn in new power stations and grid upgrades is needed over the next decade to replace ageing plants, to hit climate change targets and to ensure lights do not go out.

He set out a four-pronged approach to ensure investment goes into low-carbon energy from renewables, nuclear and cleaner fossil fuel plants, and to encourage new providers to enter a market currently dominated by six big companies.

The proposals, which are subject to consultation ahead of a White Paper in March and legislation to be completed by 2012, involve increasing the cost of fossil fuel-based energy by pushing up the carbon price to between 20 and 40 a tonne by 2020.

Top-up payments would guarantee revenues for low-carbon electricity even if the wholesale price falls, and additional financial support would be given for the construction of reserve plants to provide a "safety cushion" as Britain relies on electricity from intermittent sources such as wind;

And a cap on CO2 emissions of 450-600 grammes per kilowatt/hour generated, should ensure that all future coal-powered plants use carbon capture and storage.

Unveiling what he described as the biggest reform of the UK's electricity market since the 1980s, Mr Huhne acknowledged that bills would get bigger, but insisted that in the long run, it would protect consumers' interests.

"While prices will rise in the medium term, the additional impact of the reform packages will be small, but by 2030 consumer bills will be lower than if we did not reform the market," he said in a statement to the House of Commons.

He warned MPs that "without action, we will face a real and growing threat to the security of our supply".

Demand for electricity could double by 2050, said Mr Huhne. But a quarter of the UK's power plants need to be replaced and EU targets require Britain to increase the proportion of electricity coming from renewable sources from 7 per cent to 30 per cent by 2020.

Price comparison website uSwitch said it was likely to add at least 500 to the current average bill of 1,157 annually.

Energy firm E.ON acknowledged that "investing billions of pounds in cleaner technologies will cost money, which all of us will pay for through our bills", while the CBI said the changes "will not be cheap".

Consumer Focus said Government and industry should share the burden, warning that energy users "can't be expected to write a blank cheque".

But claims prices would soar by hundreds of pounds were dismissed as "nonsense" by Prime Minister David Cameron.

Visiting an energy-efficiency research centre in Watford, Mr Cameron said: "The fact is, we've got a very clapped-out electricity generating capacity that is pumping carbon into the atmosphere and we need to replace it."

The proposed reforms would have "the spin-off advantage of helping to make Britain one of the greenest places for green energy, for green electricity, for green investment and crucially for green jobs anywhere in the world."

Research by energy regulator Ofgem suggests price increases of 14 per cent-25per cent by 2020, though rises could be as high as 60 per cent in some circumstances.