Government must tell truth about energy prices, says RWE npower

The government has so far failed to warn consumers that decarbonising the UK's electricity supply will involve significant price hikes, according to the chief executive of RWE npower.

And even when oil prices were high last year and the government had the chance to tell the public this could be a familiar pattern in the future, they shunned the opportunity.

"Instead, our leaders told the public they had a right to expect a return to the low costs of the past," said Andrew Duff, CEO of RWE npower.

"This is wrong. Collectively we need to start telling our public a few home truths about the real and significant costs they will have to face."

A recent European Commission survey found that people support action on the environment but that 45 per cent thought low energy prices were the main government objective.

The embattled Labour administration has been wary of alienating voters and has fought to present the move to a low-carbon economy as an economic opportunity. Lord Mandelson reaffirmed this in a speech only last week.

And Lord Stern's report on the economics of climate change saying that investment of only one per cent of GDP was needed to tackle the problem had " not been helpful", and gave a false impression to consumers, said Duff.

The climate change committee re-evaluated this as "a few per cent" – still not high enough to give an accurate representation of the scale of the cost, according to Duff.

"The effect on medium-term energy costs to customers is going to be severe," he said.

Some 35GW of new supply needs to come on-stream in the UK before 2020 to keep the lights on.

The CCS-enabled coal plants and nuclear power stations that will form the base load of power supply in 2020 are in themselves significantly more expensive than traditional fossil fuel stations to operate.

Adding to this mix a quota of even more expensive renewables will have to mean significantly higher energy prices.

Contrary to popular opinion, energy companies are not rolling in money and are having a "tough time of it" at the moment due to volatile oil prices, he added.

RWE npower is making significant investments in new supply, with 20 per cent of operating currently being invested annually. RWE will invest some £15bn in renewables, clean coal and nuclear power before 2020.

Even this investment is not enough to cover all the costs of new supply and price hikes will be inevitable, said Duff, adding that history had proved that consumers will swallow higher costs when times require it as long as they are shown tough leadership.

"We've done it before in post-war reconstruction and in the development of North Sea gas. If we manage it, the benefits will be realised not just by us but by our children and grandchildren."