Restore competition to fix the electricity market says Lords committee

This is one of the key findings of the House of Lords Economic Affairs Committee’s report The Price of Power: Reforming the Electricity Market, published today.

The Committee identifies two key failures in the current market.

• First, although security of the supply is the most important objective, there is currently a narrow amount of spare capacity. Growing concerns about the deliverability of new nuclear further puts further pressure on this margin in the longer term.
• Second, costs to consumers and businesses are rising. Since 2003 consumer prices have risen by 58% and industrial prices are the highest in Europe.

Commenting on the report, Lord Hollick, Economic Affairs Committee Chairman, said:

“Poorly-designed government interventions, in pursuit of the decarbonisation, have put unnecessary pressure on the electricity supply and left consumers and industry paying too high a price.

“Domestic electricity bills in Britain have gone from being second cheapest in Europe in the mid-2000s to the seventh cheapest today. Britain’s high industrial electricity prices have led some energy-intensive industries to relocate abroad. Low-carbon policies are a factor in these high prices.

“Hinkley Point C is a good example of the way policy has become unbalanced and affordability neglected. It does not provide good value for money for consumers and there are substantial risks associated with the project.

“The Government must make sure that the security of the UK’s energy supply is the priority of its energy policy. Affordability must not be neglected and decarbonisation targets should be managed flexibly.

“We would like to see the Government step back from the market and allow all generating technologies to compete against each other. It should establish an Energy Commission to ensure competitive auctions have independent oversight and are scrutinised carefully.

“Renewables play and will continue to play a crucial part in energy policy. Costs have been reduced and efficiency has improved. New clean technologies must be supported to be commercially viable. A new National Energy Research Centre would also help the UK to catch other countries up in the race to find cost-effective solutions to the challenges the world faces on energy.”

In order to address the failures in the energy market the Committee recommends the Government should:

• Ensure that security of supply is always the first and most important consideration in energy policy. Affordability and decarbonisation must not be prioritised ahead of security.

• Ensure that decarbonisation is achieved at the lowest cost to consumers. Decarbonisation policies accounted for around 10% of the average domestic bill in 2013.  This may mean waiting for the development of new technologies which can reduce emissions. The Government should make sure that the pace of reductions is flexible and not a rigid path to be achieved at all costs. 

• Reduce and remove Government interventions in the market. The best way to do this would be to ensure that electricity generating capacity is secured through a single, technology-neutral, competitive auction for electricity supply. This auction would ensure that consumers are paying the lowest prices for low-carbon electricity.
• Establish an Energy Commission to provide greater scrutiny of energy policy decisions. This independent advisory body would report to the Secretary of State and advise on the best way for all the objectives of energy policy to be delivered.
• Create a world-class National Energy Research Centre which would search for new methods of producing cheap, clean energy and translate them into commercial applications.
• Outline its ‘Plan B’ in the event Hinkley Point C is delayed or cannot produce the anticipated power.