Asia Global Energy Reviews

The Liberal Democrats have dismissed a Conservative threat to cut renewable energy subsidies in order to reduce consumer bills as a "total red herring" while energy companies have warned that a political row over green policies will itself lead to higher prices.

Following the headline-grabbing pledge by Ed Miliband that a Labour government would freeze energy prices for 20 months Tory ministers queued up to attack green subsidies at their conference in Manchester last week with some saying that the levies should be cut in order to reduce bills.

But a senior Lib Dem source told the Guardian such a cut was not legally possible because contracts with energy companies are already in place: "This side of the election, the deals are already done: you'd need to be knocking on the doors of windfarms and saying the deal you had is off."

The Lib Dem source added that just 3% of current bills – £37 a year – was spent on supporting wind, solar and other green power. "Half of the bill is wholesale energy costs and they are only going in one direction – up – as they have in the last year or two. Any 3% cut could be wiped out in the next six months."

Senior industry figures warn that political bickering over support for green energy will only add to investor uncertainty and so push up bills for everyone.

"If parties are not pulling in the same direction, investments become riskier, borrowing becomes more expensive and, ultimately, consumers pay more," said Alistair Phillips-Davies, chief executive of SSE, in a letter to party leaders. "Energy policy is too important to become paralysed by politics." He proposed shifting the £110 of green and social policy costs from customer bills into general taxation, "shifting the cost away from those [in fuel poverty] who can't afford to pay and on to those who can."

Energy bills have doubled in the past eight years, with more than two-thirds of the rise due to the rise in global gas prices. But a growing part of the bill is composed of levies imposed by the government to pay for clean energy subsidies and social programmes to increase the warmth and efficiency of the homes of poorer families and pensioners.

Currently, 5% of bills – £58 a year – is spent on energy efficiency schemes which, with the 3% for renewables and 1% for Europe's carbon emissions trading scheme, brings the total green and social costs to 9% of a bill. By 2020, government projections indicate that proportion will double to about 20% – £285 of the expected 2020 annual bill – but the Department for Energy and Climate Change calculates that these schemes and other energy efficiency schemes will reduce overall bills by £452. So without them, bills would be £166 higher by the end of the decade.

After Miliband's pledge to freeze bills, Conservative ministers from David Cameron down have been taking aim at the subsidies. In an interview with the BBC's Andrew Marr show, David Cameron said that subsidies for windfarms must not continue for "a second longer than necessary".

George Osborne said that efforts to reduce carbon emissions from energy generation "would add to energy bills because it is too fast and too dogmatic".

The energy minister, Michael Fallon, told delegates at Tory conference that the government had to meet renewable energy targets "whether we like them or not" and then, responding to an audience member about environmental and climate change commitments, said: "It would be my luck to scrap them." A senior Tory minister later briefed journalists anonymously that his party would reduce bills before the next election by cutting green energy subsidies. One programme in particular that has come under pressure is the Energy Companies Obligation, which subsidises insulation measures for the homes of the poorest to help them reduce their bills.

Energy companies and green lobby groups have accused both Labour and Conservatives of creating new uncertainty about future energy policy, which they claimed would result in even higher bills. The UK requires at least £100bn of investment to replace dirty, ageing energy plants with clean power sources to keep the lights on and meet legal climate change targets.

A spokeswoman for Energy UK said: "Energy security – and the cost we pay both in terms of our bills and also to build the renewables, new nuclear and other power stations while renewing and improving the wires and pipes – is a debate which is above partisan argument. We need a calm, considered debate."

RenewableUK's Jennifer Webber said cutting renewables subsidies too far and too fast risked halting their development and leaving the UK dependent on the fossil fuels whose rising cost had driven up bills. She said renewable energy subsidies had been cut and would continue to fall, in particular with future schemes only receiving support for 15 years instead of the current 20 years.

"A simple cut could badly backfire as it will mean the industry will be unable to develop a supply chain to get the benefits to allow it to bring its costs down, meaning we end up paying more for less power and less wider economic benefits," she said.

The main political parties are also in fierce disagreement over a proposed target to make the UK's electricity carbon-free by 2030. The decarbonisation target is backed by Labour and the Lib Dems, as well as investors including Aviva and Bank of America and the government's official advisers at the Committee on Climate Change, who argue it will provide more certainty and therefore ultimately reduce the cost of energy investment.

Fallon told conference delegates that "having new decarbonisation targets threatens the [economic] recovery under way". He said: "I am a cheap green: I don't want to load any other costs on to consumers or business. My job is to make sure greenery does not run away from us."

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