Coalition faces clash over green energy plans

The coalition is heading for a fresh dispute over green energy after a call by Downing Street to water down climate commitments as part of efforts to keep power bills down.

Senior Conservatives have put under review several green policies in the last fortnight in response to Ed Miliband’s conference pledge to freeze energy bills in 2015.

The drive to counter the Labour leader’s new policy could see cuts to the £1.3bn annual Energy Companies Obligation (Eco), a levy on energy companies to insulate the homes of people living in fuel poverty.

But any attempt to water down or end the Eco, which is set to run until 2015, will meet stiff opposition from the Liberal Democrats. “The Tories keep talking about energy prices but we are talking about bills. Insulating homes will get costs down in the long run,” said one senior Lib Dem.

Ed Davey, the Lib Dem energy secretary, is expected to fight hard to protect the policy, according to Whitehall officials.

The Eco was introduced in January 2013 to reduce the UK’s energy consumption by funding energy efficiency improvements worth around £1.3bn every year.

It is opposed by leading energy companies, which have told the government that the programme could add as much as £100 a year to household power bills. That is nearly double the costs the energy department forecast for the Eco when it launched.

The energy groups have called on the government to review the programme to make sure it is cost-effective and does not inadvertently make fuel poverty worse.

Some Eco costs are borne by homeowners and others by energy companies, which can then pass them on to customers by raising bills.

Other green energy schemes in the line of fire this month include the carbon price floor, which was just introduced by the UK to ensure that industry pays a set amount for carbon pollution.

The new tax starts at £16 per tonne of carbon emitted this year, rising to £30 by 2020.

The price floor is expected to raise more than £4bn for the government over the next four years.

That means the Treasury is likely to resist any attempt to make the scheme less onerous because it would mean a loss of income.

Tory strategists are also considering whether there could be a further cut in the renewable obligation certificates (Rocs), a form of subsidy for green energy. These place an obligation on UK electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources.

Last year, the Treasury and energy department agreed a small cut in Rocs – along with a “review point” in 2013-14 to assess the scope for a further reduction.

Such a cut is now looking increasingly likely, although the impact would not feed into bills before the general election.

“The capacity being built now would still be eligible for the higher subsidies . . . The cut would only affect projects coming further down the line,” said a Whitehall official.

The debate comes just weeks after RWE npower warned that energy bills would rise by more than 19 per cent by the end of the decade partly because of green policies.

The company said the average household energy bill could increase by £240 to £1,487 by 2020, driven by the impact of unprecedented investment in new infrastructure and the cost of improving energy efficiency in people’s homes.

But the government said that rising global gas prices were more to blame for rising bills than green policies.

Tory and Lib Dem ministers have repeatedly clashed over how to balance support for renewable power with keeping prices down and increasing energy security.