United Kingdom

United Kingdom

Energy prices are 'too high' despite falling costs

UK: The long-awaited review in to the UK's energy market has found prices are too high even though technology costs are falling, and the market design is too complicated and needs to be simplified.

Energy prices remain high due to repeated government interference, the report found (pic: National Grid)
Energy prices remain high due to repeated government interference, the report found (pic: National Grid)

The Cost of Energy review, led by economist Dieter Helm and commissioned by the UK government, said the country's energy market had suffered from years of bureaucracy and political intervention, which added layers of costs and "unintended consequences". 

"It should be a central aim of government to radically simplify the interventions, and to get government back out of many of its current detailed roles," the 200-page report said. 

Helm adds the "excessive costs" have led to consumers missing out on the savings made by falling technology prices in gas, coal and renewables. 

"The costs of decarbonisation are already estimated by the [independent advisory body, the Committee on Climate Change (CCC)] to be around 20% of typical electricity bills.

"These legacy costs will amount to well over £100 billion by 2030. Much more decarbonisation could have been achieved for less; costs should be lower, and they should be falling further."

Helm said the level of involvement in the energy market by the government was similar to the pre-privatised sector. 

"Keeping costs down is all the more important as the electricity system faces a series of major challenges over the next decade.

"Not only does it need to meet the carbon budgets, it needs to do this in the context of major retirement of existing capacity, the investment requirements to handle the intermittent renewables, the coming of electric transport, and the wider demands of a digitalising economy.

"These challenges are on a scale and magnitude not witnessed since the reconstruction of the electricity industry immediately after World War II," the report finds. 

Commenting on the review, James Court, head of policy and external affairs at trady body Renewable Energy Association (REA), said: "There is broad thinking in this report that the renewables industry can get behind, especially that we need to decarbonise in the lowest cost way, and that uncertainty and continual government interventions can add to overall costs.

"We are glad the report notes the huge cost reductions renewables have had. We agree it is time for policy reform that gives industry longer term certainty about how the sector will be structured so that companies can make proper investments in manufacturing capacity.

"The energy market is changing rapidly, and the future energy market can be lower cost, lower carbon and centred around the consumer. This report hints at the evolution of the industry, but perhaps doesn't fully recognise the fundamental shift that is happening from centralised and inflexible generation to a smarter, more connected and decentralised energy system, and the policy framework needed to make that happen."

RenewableUK’s Chief Executive Hugh McNeal added: "The cost of renewable energy has fallen further and faster than anyone predicted - and Professor Helm predicts that this trend will continue. 

"Offshore wind costs have dropped by 50% since 2015, making it cheaper than nuclear and gas. 

"When it comes to keeping bills down, low-cost onshore wind is a crucial technology for consumers and must be allowed to compete on a level playing field."

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