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UK unveils energy cost review

UPDATE: Prices higher than necessary to meet climate change targets

UK unveils energy cost review image

The UK government has today published an independent review into reducing costs in the electricity supply chain.

The review, which was carried out by Professor Dieter Helm, considers the whole electricity supply chain of generation, transmission, distribution and supply and outlines ways to reduce costs.

Helm said the cost of energy higher than necessary to meet UK climate change targets and carbon budgets.

Consumers have not benefited from falling costs, particularly renewables, with  legacy costs and policies and regulation contributing to the problem.

He said legacy costs from renewables obligation certificates, feed-in tariffs (FiTs) and Contract for Difference have contributed to rising prices and should be “separated out, ring-fenced and placed” in what he called a ‘legacy bank’.

“They should be charged separately and explicitly on customer bills. Industrial customers should be exempt. Once taken out of the market, the underlying prices should then be falling,” the review said.

FiTs and CfDs should be phased out and “merged into a unified equivalent firm power capacity auction”.

“The costs of intermittency will then rest with those who cause them, and there will be a major incentive for the intermittent generators to contract with and invest in the demand side, storage and back-up plants,” the report said.

Helm added that the most efficient way to meet climate change targets was to set a universal carbon price across the economy.

RenewableUK chief executive Hugh McNeal said: “Professor Helm’s report supports the view that renewables are set to become the backbone of the UK’s modern power system and that a flexible grid will ensure costs for consumers are kept as low as possible.” 

Scottish Renewables deputy chief executive Jenny Hogan said: “We welcome the report’s recognition of the rapidly falling cost of renewables and its aim to find a way to meet carbon targets and deliver security of supply at lowest cost.

“We now look forward to working with Government on achieving the goals set out in the Clean Growth Strategy, and with industry to ensure that the cost reductions happening across the sector can continue apace.”

Solar Trade Association head of policy Chris Hewett said: “We hope this Review will prompt an urgent rethink and without further prolonging uncertainty for our industry.

The review follows a plan set out in July by government and Ofgem to upgrade the network to a smarter energy system, and the publication of draft legislation on an energy price cap to keep energy bills as low as possible.

The government said it will shortly be seeking the views of industry, businesses, academics and consumer groups on the review.

Business and Energy Secretary Greg Clark (pictured) said: “I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings.”

Image: BEIS

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