House of Lords energy report criticises UK energy policy

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The Economic Affairs Committee of the House of Lords has published its report, which delivers a damning critique of UK energy policy in recent years.

“The Price of Power: Reforming the Electricity Market”  claims the ‘constant intervention by successive governments in the electricity sector has led to an opaque, complicated, and uncompetitive market that fails to deliver low cost and secure electricity’.

The report in short

The report sums up the key difficulties with current policy, namely the narrow amount of spare capacity, particularly in winter, and the rising cost of electricity to consumers and businesses. Some of the conclusions are striking including;

  • in the last decade domestic electricity bills moved from being the 2nd cheapest in Europe to the 7th;
  • in 2013, around 10% of average domestic consumers’ bills went towards low carbon policies;
  • industrial electricity prices across Britain are some of the highest in Europe;
  • around 13% of electricity costs relate to decarbonisation after compensation is accounted for;
  • private investors have not been keen to build new conventional power plants while guaranteed fixed price and period contracts have been supporting renewable generation; and
  • UK capacity margin is narrow with the capacity market still struggling to provide new power stations.

Improvements called for

The committee also makes some suggestions to improve the situation, calling for;

  • a new National Energy Research Centre with a commercial focus on clean and cheap energy production;
  • energy security to be the top priority in energy policy;
  • flexibility on the pace and path towards decarbonisation of the electricity system;
  • electricity generation capacity to be bought through a single technology-neutral auction and ensuring low carbon electricity is obtained at the lowest possible prices; and
  • setting out a ‘plan b’ in case the Hinkley Point C nuclear project is delayed or can’t produce the expected electricity output.

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.

“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.”

Energy expert insight

 “Although pointedly critical of UK energy policy over recent years, the committee’s central argument that energy security should be a top priority and the issues around new capacity build rate is a powerful one. Particularly the argument for a plant capable of providing base-load capacity as unabated coal and current nuclear plants are phased out during the next decade.

The capacity market appears capable of securing capacity over the short term but looking forward five to ten years, building significant new capacity capable of providing the UK’s base-load reliably, at the lowest cost to the consumer and with a lower carbon impact, presents a major challenge for policy makers.

Current policy instruments do not appear to be driving the build of such new capacity quickly enough, given the long lead times for some forms of large-scale capacity.

There also needs to be recognition within policy measures of the potential for grid-scale electricity storage to help counterbalance the intermittent nature of some renewable electricity production, particularly wind as we develop the scale of offshore wind capacity.”  Alastair Fells MEI.

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