The UK Government should allow all technologies to compete in a single, “technology-neutral” auction to supply electricity at the lowest possible cost to consumers.
That’s the suggestion from the House of Lords Economic Affairs Committee (EAC), which believes consumers may be paying “unnecessarily high costs” to meet the UK’s interim carbon budget targets.
The carbon budget is a legally binding legislation that places a restriction on the total amount of greenhouse gases the UK can emit over five-year periods.
The group of MPs add technological advances could bring the cost of renewable energy down substantially as shown by the “dramatic” recent falls in the cost of solar and offshore wind.
They are calling on the government to establish an Energy Commission to ensure the auctions have independent oversight and are scrutinised carefully.
They believe constant interventions 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 Committee adds the three objectives of energy policy – security of supply, affordability and decarbonisation – are “not complementary at present” and achieving them have come at a high cost to the consumer.
It is urging the government to restore competition to fix the electricity market as well as publish its contingency plans for Hinkley Point for how it will make up the capacity due to be provided by the plant in case it doesn’t succeed or is delayed.
It identified two key failures in the current market:
- There is currently a narrow amount of spare capacity, with growing concerns about the deliverability of new nuclear putting further pressure on this margin in the longer term.
- Costs to consumers and businesses are rising – prices have increased by 58% since 2003 and industrial prices are the highest in Europe.
The MPs add high industrial prices have led some energy intensive companies to relocate abroad and believe low carbon policies are a factor in the high prices.
EAC Chair Lord Hollick said: “Poorly-designed government interventions, in pursuit of decarbonisation, have put unnecessary pressure on the electricity supply and left consumers and industry paying too high a price.
“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.
“We would like to see the government step back from the market and allow all generating technologies to compete against each other.”
He adds renewables will continue to play a crucial part in energy policy and urges the government to support new clean technologies so they can be commercially viable.
The Committee also suggests establishing a new National Energy Research Centre to help the UK “catch up” with other countries in the race to find cost-effective solutions to global energy challenges.
The Department for Business, Energy & Industrial Strategy (BEIS) said keeping the lights on is “non-negotiable”.
A spokesperson added: “Our top priority is making sure UK families and businesses have secure, affordable energy supplies. Through our ambitious Industrial Strategy Green paper, we are investing in energy innovation to bring down costs over the long term.
“Policies, such as the Energy Company Obligation, Warm Home Discount and minimum standards for boilers and energy using appliances, have helped to improve energy efficiency, reducing consumption and driving down bills. Equally, we have a clear expectation that energy companies should treat all their customers fairly – and the government is prepared to act wherever markets are not working for consumers.”