The review, which was undertaken by Dieter Helm, professor of economic policy at Oxford University, revealed that energy bills are rising despite the falling prices of oil, gas, coal and renewables. The average energy bill is now around £1,200 per year, which energy firms have claimed is due to higher wholesale prices and the costs of the government’s clean energy policies. This prompted the government to commission Helm’s research, to find the best way to deliver a low-carbon energy system while lowering energy costs and ensuring security of supply.
In his report, Helm notes that energy costs are significantly higher than they need to be, and that this is the result of the Government’s excessive intervention in the market. According to Helm, the government has so many ongoing interventions in the electricity market that few people would be able to list them all, and it’s this complexity that is inflating energy costs. He also highlighted that ministers’ forecasts of future energy costs were far too high, and criticised them for locking consumers into contracts based on these inaccurate estimates.
The solution, Helm states, is for the government to simplify their interventions, and remove the government from their many existing roles. With the costs of decarbonisation accounting for around 20 percent of an average electricity bill, he recommends that schemes like feed-in tariffs and contracts for difference (CfDs) should be gradually phased out and replaced with a “unified equivalent firm power (EFP) capacity auction”. This would mean that low-carbon generators would bear the costs of their intermittency.
Helm proposes that the cost of existing clean energy policies should be put into a “legacy bank”, with this cost shown separately on consumer bills and an exemption for industrial customers. He also claims that rather than a price cap, the government should introduce a universal carbon price across the entire economy, alongside a border carbon price to prevent emissions from being exported.
If the Government fails to implement the report’s recommendations, Helm warns that energy costs will continue to rise and we face further fuel poverty, weaken our industrial competitiveness and risk losing public support for decarbonisation. Greg Clark, the Business and Energy Secretary, thanked Helm for his report and promised that the Government will, “carefully consider his findings”.
Read the full review here: https://www.gov.uk/government/publications/cost-of-energy-independent-review