The UK government on Wednesday published an independent review into energy costs and said it will shortly seek the views of industry, businesses, academics and consumer groups on the examination.
The government asked professor Dieter Helm to undertake the review in August as part of the Industrial Strategy Green Paper. The aim is to recommend ways to keep electricity costs low, while ensuring the UK meets its climate targets.
The report says that the cost of energy is "significantly higher" than needed to meet the government's objectives and that energy policy, regulation and market design are not fit for the emerging low-carbon energy market. It calls for "radical simplification of energy policy, getting government back out of the detailed interventions it has become entrenched in."
The review also says the rapid decline in the costs of both renewables and intermittency such as demand side and storage open up the prospect of a subsidy-free energy market, provided everyone pays the full cost of carbon required to meet the carbon budgets. According to the report, the government should set the carbon price and the various taxes, and should "stop picking winners and engaging in detailed investment decisions."
Helm recommends gradually phasing out the feed-in tariffs (FiTs) and other low-carbon contracts for difference (CfDs) and merging them into a unified equivalent firm power (EFP) capacity auction. The costs of intermittency will then be responsibility of those who create them, and intermittent generators will have a strong incentive to invest in the demand side, storage and back-up plants.
"Ending the FiTs and low-carbon CfDs makes sense only if there is something better to put in their place, and this includes the carbon price and the EFP auctions," says the analysis.
On the auction recommendations, Chris Hewett, head of policy at the Solar Trade Association (STA) said: "We need to look into his auction proposals in more detail, but it is obviously cheaper and more efficient for renewables variability to be handled at a system level rather than on a plant by plant basis. Furthermore the cost of variability depends very much on the surrounding system, which is in flux." Hewett added it is not clear how auctions would enable consumers' participation in the energy market through on-site generation, storage and demand-side response.
Helm also proposes placing the legacy costs from the Renewables Obligation Certificates (ROCs), FiTs and low-carbon CfDs in a "legacy bank" and charging them separately on customer bills.
The STA said there are contradictions in the report, but welcomed its potential to open up discussion on fairer markets. STA chair Jonathan Selwyn said the solar industry stands ready to compete on an equal footing with other technologies, but expressed disappointment that the report gives the impression that support for early-stage renewables is the major reason for rising bills.
RenewableUK’s chief executive Hugh McNeal said: "Professor Helm’s report supports the view that renewables are set to become the backbone of the UK’s modern power system and that a flexible grid will ensure costs for consumers are kept as low as possible." He noted that Helm describes renewables as the "new conventionals."
The Renewable Energy Association (REA) said it agrees that large-scale thinking is needed in the current time of transformation. According to it, however, the report does not fully recognise the opportunities emerging from a more decentralised, renewables-oriented energy system.
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Transmission lines. Author: Nayu Kim. License: Creative Commons, Attribution 2.0 Generic.
