THE ENERGY INDUSTRY TIMES - SEPTEMBER 2017
Final Word 16
Half a loaf is not always better
than none – sometimes it is
better to deliver nothing at all
than to serve up something that is halfbaked.
In early August the UK government
announced an independent review
into the cost of energy, with the aim
of ensuring the UK has the lowest
energy prices in Europe. On the face
of it, it appears to be a much-needed
move to address what has long been
a major gripe among the voting
public. One could be forgiven, however,
for believing it is no more than
a PR exercise being executed in halfhearted
fashion.
Certainly the move is timely. It
comes as retail energy prices are once
again rising, despite falling wholesale
prices. In August British Gas, the
UK’s largest supplier, announced it
was increasing electricity prices on
its standard domestic tariff by 12.5
per cent. The company was the last
of the Big Six energy suppliers to raise
prices following price hikes by the
others in the spring.
In last year’s industrial strategy and
in this year’s Conservative manifesto,
the government promised to conduct
a root and branch investigation of the
whole electricity supply chain – from
generation to supply – amid growing
public concern over rising energy
prices.
Domestic electricity bills in Britain
have gone from being the second
cheapest in Europe in the mid-2000s
to the seventh cheapest today. For industrial
users they are the third highest
among 15 European countries, according
to the UK government.
The Conservative manifesto promised
that the resulting report would be
the first step towards “competitive and
affordable energy costs”. According
to the government, the review will be
an ambitious study recommending
ways to meet its objectives of keep
energy prices as low as possible while
continuing to meet the UK’s climate
targets.
Yet that ambition is questionable.
Oxford University academic Dieter
Helm will chair the review, supported
by a five-strong advisory panel.
Some observers have questioned
whether Prof Helm and his team can
fulfil such a wide-ranging agenda
given its staffing and the limited time
the government has allotted to the task.
The report is due to be delivered by
the end of October.
“A review by one man backed by
an unpaid challenge panel and operating
against a rushed timetable
seems a way of simply finding out
what Dieter Helm thinks,” said Doug
Parr of Greenpeace. “It is unambitious
compared to the review we were
expecting.”
The choice of Prof Helm is also
controversial in some quarters due to
his past criticism of wind and solar
power. In an interview with The
Guardian newspaper: Hannah Martin,
head of energy at Greenpeace UK,
said: “Dieter has a well-known
preference for gas and has historically
failed to grasp the full potential
of renewables.
“At a time when the costs of offshore
wind and solar are plummeting this
review needs somebody with the vision
to grasp the opportunities offered
by clean energy to provide jobs, lower
bills and slash carbon pollution.”
Fears over a bent against renewables
have been allayed by Helm’s choice
of his supporting team – which includes
renewables supporters – but
only to some degree. The team will
not have time for any significant
number of meetings.
Further, one member of the panel told
the Financial Times that participants
“had little idea of what the structure of
these meetings would be”, or how they
were expected to contribute to the final
report. “As I understand it, we are a
sort of challenge panel,” the individual
said. “Dieter writes the report and
we’re invited to say ‘have you thought
of this or that?’ But it will be his work
at the end of the day, and he will say
what he wants to.”
Some constraints the government
has put on the panel are also worrying.
It has mandated that the review will
not propose detailed tax changes.
Notably, the Department for Business,
Energy and Industrial Strategy (BEIS)
also said the review should consider
only “system issues” and not comment
on the status of individual projects. A
government spokesperson for BEIS
said: “We didn’t want Prof Helm to
spend two months simply arguing
against the Hinkley project as that
doesn’t meet the task in hand.”
That smells more of rotten eggs than
freshly baked bread. How any review
into energy prices can be conducted
without addressing the £20 billion
price-tag of Hinkley C is inconceivable.
In June the National Audit Office
said BEIS’s deal for Hinkley Point C
“has locked consumers into a risky and
expensive project with uncertain
strategic and economic benefits”. The
plant will receive an estimated subsidy
of £30 billion and is expected to add
£15 to annual electricity bills up to
2030.
A separate report on UK energy
policy published by the House of
Lords Economic Committee earlier
this year, noted: “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.”
Clearly in this latest review, the
government seems keen to avoid putting
the spotlight on what might be
regarded as failures in policy at worst
and short sightedness at best. Still,
there is every likelihood it might reveal
unexpected findings in terms of where
the blame lies for high energy prices.
The Economic Committee report
noted that 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”.
Energy consultancy Cornwall Insights
estimates that renewable subsidies,
energy efficiency initiatives and
smart meters will account for approximately
22 per cent of the average
UK household electricity bill of £550
this year.
Commenting on the upcoming review
Lord Hollick, who chairs the
House of Lords Economic Committee,
said: “Ironically, the largest
driver of electricity costs may turn out
to be the charges imposed by government
policies.”
This could ease the pressure on energy
suppliers dismayed at wholly
shouldering the blame for high prices.
Iain Conn, Chief Executive of Centrica,
the owner of British Gas, said
the government could be “a little bit
more open” with consumers about
how its own policies to move to a
low-carbon economy were pushing up
bills. “It is frustrating to always end
up being blamed for it rising bills,”
Conn said.
If the independent review proves
Conn to be correct, the government
will have shot itself in the foot – to
some degree. It is likely that the truth
behind rising energy prices lies somewhere
between what both camps –
government and energy companies –
are arguing.
No doubt some useful recommendations
will come out of the review in
terms of the way ahead for the industry.
The review’s specific aim is to
report and make recommendations on
how government objectives can be met
in the power sector at minimum cost
and without imposing further costs on
the exchequer. In that context the review
will consider the implications of
the changing demand for power, including
from industry, heat and
transport.
However, it is unlikely to have any
immediate or even near term effect on
slowing the rate at which energy
prices are rising. More likely it will
never have any effect at all. Government
instigated energy reviews seldom
amount to much in terms of,
noticeable impact and there is little to
instil confidence that this latest review
of energy pricing will be any different.
For consumers, the end result is likely
to be much of the same, another halfbaked
crust that’s hard to swallow.
Food for thought
Junior Isles
Cartoon: jemsoar.com
the largest driver of electricity costs may turn out to
be the charges imposed by government policies