ENERGY companies are raising gas and electricity prices again, meaning yet more misery for those struggling to pay their bills. Many pensioners face the prospect of spending about a quarter of their income on basic utility services - and that's on top of the increasingly unaffordable council tax.
While political tension in the Middle East and high demand in Asia are clearly partly responsible for high wholesale energy prices, government policies, driven by an environmentalist agenda, are making a difficult situation far worse.
An increasing share of bills is being used to subsidise uneconomic renewable energy, such as wind power. By 2010, the Government's renewables obligation will add £1bn a year to electricity prices. Proposals by the European Commission to introduce legal targets for green energy are likely to lead to bill increases of 10-15 per cent by 2020.
Extra expenditure will also be needed to integrate wind power into the national grid. The planned offshore locations tend to be distant from the existing network so new capacity will be required. This means that stretches of coastline are likely to be scarred by unsightly pylons, or that consumers will subsidise the costly process of burying power cables underground.
A further problem is that wind power is highly unreliable. Extra capacity must, therefore, be provided in conventional power stations to maintain supplies on calm days.
And there is more bad news. The decision to build a new generation of nuclear power stations will further increase prices. When capital costs are included, nuclear generation is significantly more expensive than coal-fired. Construction overruns, as well as largely unknown decommissioning and waste-disposal costs, could further inflate bills. If the consortia building the new stations go bust, the Government could end up finishing the job with taxpayers' money.
Britain's previous nuclear programmes have been economically disastrous development losses amount to at least £20bn, while decommissioning is likely to cost another £75bn. Yet caution has been thrown to the wind in an attempt to appease the global-warming lobby.
Environmental policies have also raised the cost of fossil-fuel generation. Some coal-fired power stations, such as Drax, near Selby, have been fitted with expensive desulphurisation plants costing up to £1bn each in current prices.
Yet this equipment may actually speed up climate change, since sulphur dioxide emissions are thought to have a cooling effect on the atmosphere. The desulphurisation process also requires vast quantities of limestone, which has meant additional quarrying in the Peak District.
These sulphur "scrubbers" were designed to reduce acid rain, but it is now clear that the scale of the problem was greatly exaggerated by a coalition of environmentalists and European bureaucrats. Acid rain from UK power stations had a positive fertilising effect on many soils and actually improved agricultural yields. The damage to trees was negligible. But electricity customers have ended up paying dearly for measures that, in reality, have had little impact.
True to character, environmentalists are strongly opposing proposals to build a new coal-fired plant in Kingsnorth, Kent. Yet such new capacity is needed desperately to keep bills under control. Electricity from coal power stations is cheaper than gas or nuclear, while new technology means that new plants will be 20 per cent more efficient than existing ones and release far less carbon.
Energy security would also be enhanced. Major coal exporters include Australia and the US stable countries that are unlikely to threaten Britain's supplies. And the world won't run out of coal in the near future reserves will last for hundreds of years.
There is, therefore, a strong economic and environmental case for building new coal-fired power stations. Yet despite huge benefits cheaper electricity and lower emissions none has been built in the last 20 years.
Whether it made economic sense to "dash for gas" in the 1990s is a moot point, but gas has recently been in short supply, and the market has responded. A new pipeline has been built from Norway to Easington, in the East Riding, and import capacity for liquified gas has been increased at Milford Haven, in Wales. The energy companies should also be given similar flexibility to exploit new coal-powered electricity generation.
But an increased level of regulation is likely to make such adaptation more difficult in the future. As politicians and bureaucrats attempt to control how our gas and electricity is supplied, there will be reduced scope for the innovation and entrepreneurship needed to combine lower prices with lower emissions.
The recent policy record does not augur well for consumers. Government interventions in the energy sector have achieved very little in terms of improving the environment but have been highly successful at raising bills.
Dr Richard Wellings is Deputy Editorial Director at the Institute of Economic Affairs.
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