Oct 09 - Scotland on Sunday

Electricity is "too cheap" and prices will have to rise if Britain is to meet tough targets for reducing greenhouse gas emissions, Scottish and Southern Energy has warned.

Brian Smith, the utility group's head of projects, said the price of electricity gave consumers little incentive to cut down their usage, for example by switching off lights.

"Energy is too cheap to be efficient. The way to reduce demand is to increase prices because people would use less," he said

Smith urged the UK Government to abandon its policy of regulating electricity prices to keep them low.

"Affordable energy is not consistent with climate change and saving energy," he said.

Smith's comments are likely to worry some consumers who have seen rising energy costs eat into household budgets at a time when mortgage payments and food prices are also rising. Gas has doubled in price over the past three years and electricity is 50 per cent more expensive than it was. Smith told the Scottish Parliament's economy, energy and tourism committee that the need for a secure supply and pressure to help the environment would lead to upward pressure on prices. He said: "There is this eternal triangle between prices, security of supply and the environment."

Power companies have been accused of failing to pass on the full benefits of falling gas prices despite having cranked up their tariffs when gas prices started rising. But despite Smith's comments, SSE has succeeded by being a tough competitor on price. It added more than one million new customers last year thanks in part to its policy of keeping bills down. Those extra sales helped to push its annual profits through the GBP 1bn barrier for the first time.

The company's website claims that its electricity and gas customers paid GBP 320 less over three years than customers of British Gas, owned by Centrica.

And the Perth-based group, which owns the Scottish Hydro Electric power company in northern Scotland, offers customers air miles which can be exchanged for flights.

The group is one of the UK's biggest generators of renewable electricity, thanks mainly to its legacy of hydroelectric power stations built while the industry was in state hands.

This month the company signed a deal with Carbon Trust Enterprises to support InSource Energy, a bio-waste to energy business.

SSE will invest up to GBP 2.7m to acquire up to 40 per cent of InSource Energy plus up to a further GBP 10m to fund the company's projects as it enters its next phase of development.

SSE is mulling over plans to get involved in nuclear electricity generation once the Government has indicated when a building programme for new power stations can begin.

Smith's comments also appear to run counter to the thrust of European policy. The European Commission last week put forward proposals to split energy companies from their transmission networks in an effort to drive down prices in countries such as France and Germany where competition is limited.

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