Consumer energy bills to rise to keep power plants open

Ed Davey, the energy secretary, said that the policy would add £2 to consumer bills.

However, the Department of Energy and Climate Change later clarified that the £2 impact was compared with a future scenario in which there was no capacity market, rather than compared with today's prices.

DECC said it forecast that the new capacity market would cost consumers about £13. However, it also predicts that it will also save consumers about £11 by preventing future power price spikes that would otherwise occur in the event of shortages, giving the net forecast impact of £2.

DECC had previously estimated that the policy would have a net impact of £13-£14 to bills, again compared with a future scenario with price spikes and blackouts. It has since significantly changed its modelling, predicting far more severe price spikes in the absence of the policy, resulting in the £2 net impact.

Mr Davey said: "There was a real risk back in 2010 that an energy crunch would hit Britain in the middle of this decade and lead to damaging power cuts.

"But the excellent news is that with [this] announcement we have the final piece of the jigsaw of our detailed energy security plans and can now say with confidence that we have defused the ticking time bomb of electricity supply risks we inherited."

Analyst Peter Atherton at Liberum Capital said that total payments to energy companies under the scheme could be in the region of £1.6bn, implying payments of at least £20 per household.

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