09/11/2017
How can energy costs be cut? (UK)
Legacy costs, policies, regulations, the complexities of multiple market interventions and the exercise of market power all contribute to unnecessarily high electricity costs for businesses and households, concludes a recently published industry review that provides the basis of a government call for evidence on how energy costs can be cut.
The Helm Review,* ‘Cost of energy: independent review’, concludes that the cost of energy is higher than necessary to meet the Climate Change Act target and carbon budgets; prices should be falling now and go on falling in the medium and longer terms.
‘Cost of energy review: call for evidence’ asks respondents to take account of the findings and recommendations of the Review in submitting their views on
- the longer-term challenges for electricity generation
- the policy framework for electricity generation
- reducing the cost of electricity generation in the longer term
The report’s main conclusions and recommendations include
- it should be a central aim of government to radically simplify interventions and get out of many of its current, detailed roles
- the legacy costs from the Renewables Obligation Certificates (ROCs), the feed-in tariffs (FiTs) and low carbon contracts for difference (CfDs) should be charged separately and explicitly on customer bills (industrial customers should be exempt)
- the most efficient way to meet the CCA target and the carbon budget is to set a universal carbon price across the whole economy
- the current RIIO (Revenue = Incentives + Innovation + Outputs) periodic review price caps for the transmission and distribution companies have resulted in higher prices than need to be charged
- there should be no more periodic reviews in the current RIIO framework as technical change makes predicting costs impractical
- the role of Ofgem in network regulation should be significantly diminished
* Commissioned by the government from Professor Dieter Helm as part of the Industrial Strategy to identify how government and regulators can keep the cost of electricity as low as possible while ensuring the UK meets its domestic and international targets.
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