Kwasi Kwarteng to rein in green profits as energy price cap set to soar to £6,000
Business Secretary wants firms to stop selling cheap renewables at high wholesale prices, as inflation squeezes household budgets
By Tony Diver and
Lauren Almeida 20 August 2022 • 10:30pm
Kwasi Kwarteng has reassured the public that 'help is coming' CREDIT: Anadolu Agency/Getty Images Contributor
Kwasi Kwarteng is planning to clamp down on wind and solar energy firms as a new forecast predicted the
energy price cap will hit £6,000 in April.
New analysis from the energy consultancy Auxilione said the energy price cap will hit £6,000 in April, after rising to £3,576 in October,
and £4,799 in January.
Auxilione said the energy prices would not fall until next July, when the cap would drop by a tenth to £5,486.
The increase will mean bills will still be almost
triple their current level this time next year, as inflation squeezes household budgets by up to 13 per cent.
A poll by Opinium on Saturday found that 40 per cent of the public would not be able to afford their bills at all or have to cut back on essential spending if the energy price cap rises to £3,500 in October, while a quarter say they already
cannot afford their bills.
The Telegraph can reveal Mr Kwarteng, the Business Secretary, is also preparing to intervene in the energy market in an attempt to stabilise the “crazy” profits of renewables firms.
Around a third of wind and solar producers are on inflexible legacy contracts, which have earned them billions from the high price of electricity during the energy crisis.
Mr Kwarteng is planning to offer the firms a favourable fixed-term rate at which to sell energy to suppliers for 15 years if they agree to stop selling cheap renewables at high wholesale prices.
Ministers are under pressure from Tory MPs who argue that renewables firms have made enormous profits from the price of electricity because they can produce it at a cheaper rate.
Danny Kruger, who is among those lobbying Mr Kwarteng to end the legacy Renewable Obligation (RO) contracts, said they were “the biggest avoidable driver of inflation we have” and called on ministers to “move as fast as possible to change the rules”.
The Telegraph understands firms on the old contracts, which were signed between 2002 and 2013, who have made billions from the energy crisis will instead be offered deals that pay a fixed rate for power.
If the companies refuse to switch, some will remain on the variable-rate contracts until 2037, but government sources said such a deal would “help with financial planning and investment decisions” in the long run, while bringing prices down.
Even consumers with 100 per cent renewable energy tariffs have seen prices rise. This is because the price of renewable energy is effectively tied to the price of gas and other fossil fuels. If there is more demand than supply, the price of all energy goes up, regardless of the source.
So far, ministers have committed to a
£400 bill discount in October for 28 million households.
But both Mr Sunak and Ms Truss have accepted the Government must do more to assist bill payers, with more than half expected to fall into energy poverty by the new year.
Both contenders have rejected calls from the Labour Party for ministers
to freeze the energy price cap, preventing bills from rising.
On Saturday, it was claimed that Ms Truss's team had been frustrated by Boris Johnson's decision to finance the Sizewell C nuclear power station in Suffolk.
The Sunday Times reported that Simon Clarke, the Chief Secretary to the Treasury, wrote to Mr Johnson and Nadhim Zahawi, the Chancellor, to complain the move would hinder her ability to cut taxes.
A consultation is also underway to reform Britain’s electricity markets, in an attempt to reduce reliance on fossil fuels and imported energy.
It is expected to separate the markets of renewable electricity, which is cheap, and gas-produced electricity, which is expensive.
Lord Callanan, a business minister, told MPs privately this week that ministers could launch a windfall tax on
renewable producers that have not seen their costs increase while wholesale prices have risen.
But Ms Truss, who is widely expected to win the leadership contest, has already ruled out such a tax and promised savings by pausing green levies on bills.
'Help is coming'
Writing in the Mail on Sunday, Mr Kwarteng defended Ms Truss’s decision not to impose another windfall tax on energy producers as he said she would
ease the cost of living crisis through cutting taxes and imposing supply-side reforms to the market.
“I understand the deep anxiety this is causing. As winter approaches, millions of families will be concerned about how they are going to make ends meet. But I want to reassure the British people that help is coming,” he said.
The RO scheme, which has allowed renewable producers to make billions in profit,
is funded by a green levy that costs the average bill payer £75 each year.
A Whitehall source said: “Gas generators are making an absolute killing by flogging their electricity to consumers.
“The problem is, older renewables are forced to sell their electricity at the market price too, which is set by gas.
“Given renewables are dirt cheap and gas is eye-wateringly expensive, we need to decouple the price of renewables from gas so households fully benefit from all forms of cheap renewable energy.”
