Labour's promised energy price freeze would discourage much-needed investment, says industry

Angela Knight of Energy UK, the trade body for the energy sector, said that Ed Miliband's speech to the Labour Party Conference was "not the adult debate the industry has long been calling for and that customers deserve".

In his speech, Miliband said that a newly-elected Labour government would "reset" the energy market, including through radical reform to market regulator Ofgem. Legislation allowing it to do so would be passed during its first year in office, he said. Miliband has written to each of the 'Big Six' energy companies with further details of his proposals, arguing that measures to "restore public trust" are needed if new subsidies to incentivise investment in renewable energy generation are to be successful.

"We need successful energy companies in Britain," Miliband said in his speech. "We need them to invest for the future. But you need to get a fair deal and frankly, there will never be public consent for that investment unless you do get a fair deal. And the system is broken and we are going to fix it."

"The companies aren't going to like this because it will cost them more but they have been overcharging people for too long because of a market that doesn't work. It's time to reset the market. So we will pass legislation in our first year in office to do that, and have a regulator that will genuinely by on the customer's side but also enable the investment we need," he said.

The current Government has estimated that around £110 billion worth of investment in electricity generation is needed to ensure that consumers continue to benefit from reliable energy supplies at an affordable cost. Around one fifth of the UK's existing power generating capacity is due to come off-line over the next decade due to aging power plants and more stringent environmental standards, while an increasing amount of the country's power will be generated from intermittent sources such as wind.

The Energy Bill, which is currently before Parliament, proposed a new system of financial incentives designed to ensure that low-carbon forms of electricity generation can compete fairly in the marketplace, backed with a capacity market aimed at ensuring security of supply. The Bill envisages the creation of new Contracts for Difference (CfDs), which will replace existing subsidies and incentives such as the Renewables Obligation. CfDs will allow investors to receive a guaranteed price for energy generated using low carbon methods, while allowing the system operator to 'claw back' money when market prices are high.

In his letter to energy firms, Miliband said that "the public consent that is required to underpin the scale of taxpayer backed guarantees for which you have argued" would not be forthcoming without fundamental reforms to the energy market.

"I am prepared to make the case for sharing the risks of such investment, but that must be against the backdrop of a market that customers believe works for them," he said.

However, a Labour government would also provide a "better deal for investors" by setting a 2030 power sector decarbonisation target; retaining CfDs; creating an Energy Security Board with responsibility for identifying the country's energy needs and give the Green Investment Bank borrowing powers to support investment, he said.

Energy companies said that recent price rises were due to higher commodity costs, transport and distribution charges and the impact of environmental regulation.

"Freezing the bill may be superficially attractive, but it will also freeze the money to build and renew power stations, freeze the jobs and livelihoods of the 600,000 plus people dependent on the energy industry and make the prospect of energy shortages a reality, pushing up the prices for everyone," said EnergyUK's Angela Knight.

"No other industry is facing the investment challenge of the energy sector. Last year alone the energy industry invested £11.6nm – the equivalent of building the Olympic Stadium 20 times over. We need to invest £110bn over the next ten years to build and renew the power stations, the wires and the pipes everyone in the country needs to keep the lights on, our homes warm and to supply the power for British business to compete, to recover and to grow," she said.

Knight added that regulatory reform on the scale proposed by Miliband was "posturing to no purpose". She said that energy companies had already simplified their tariffs and were "fully open about what they make, what they pay and the amount they are reinvesting".