Energy cost review: Dieter Helm’s study calls for radical changes to Britain’s energy policy

The Cost of Energy review, led by economist and academic Professor Dieter Helm, examined how the costs of electricity can be kept as low as possible as the UK looks to achieve security of supply while meeting carbon reduction targets.

Sixty-seven recommendations have been made within the review, which first launched in August as a way of investigating the country’s entire electricity supply chain of generation, transmission, distribution and supply, in light of the Government’s ambition to have the lowest energy costs in Europe.

The final review, released today (25 October), claims that businesses have not been able to capitalise on the rapidly falling costs of renewables, or benefit from the cheaper supply costs associated with ‘smart’ energy technologies.

“Tinkering with policies and regulations is unlikely to reduce costs,” states the review. “Indeed, each successive intervention layers on new costs and unintended consequences.

“It should be a central aim of Government to radically simplify the interventions, and to get government back out of many of its current detailed roles.”

Cost incentives

Specifically, the review notes that ‘legacy costs’ from key green policy frameworks such as Renewables Obligation Certificates (ROCs), feed-in tariffs (FiTs) and Contracts for Difference auctions (CfDs) are a major contributor to rising energy costs. These mechanisms should be separated out, ring-fenced, and placed in a ‘legacy bank’, the review states, and – crucially- businesses should be exempt from all associated costs. 

FiTs and CfDs should then be gradually phased out and merged into a unified ‘Equivalent Firm Power’ (EFP) capacity auction, according to the review. “The costs of intermittency will then rest with those who cause them, and there will be a major incentive for the intermittent generators to contract with and invest in the demand side, storage and back-up plants,” it states.

Meanwhile, Helm has echoed calls for a universal carbon price to be harmonised across the country. This, Helm’s review claims, is the most efficient way for the UK to meet the target set under the Climate Change Act for net carbon emissions to be at least 80% lower in 2050 than they were in 1990. And such a move would be far cheaper than maintaining multiple market interventions, according to the review. 

Despite being commissioned by the Government, policymakers appear hesitant to commit to any of the action points made within the independent review, and the country’s green policy approach for the coming decades is already beginning to take shape. The Government has, for example, already confirmed that £557m will be made available for less-established technologies within future CfD auctions, making a phase-out of that scheme seem unlikely in the near future.

Cherry-picking

In a statement released shortly after the review was published, Business and Energy Secretary Greg Clark said: “We are already taking significant steps to upgrade our energy infrastructure as part of the Industrial Strategy and have published draft legislation to cap poor value energy tariffs helping millions of consumers across Britain.

“I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings.”

Today’s energy cost review has received a mixed reaction from energy industry experts. The Renewable Energy Association (REA) has said the document contains “broad thinking that the industry can get behind”, but that it “doesn’t fully recognise the fundamental shift that is happening to a smarter, more connected and decentralised energy system”. 

RenewableUK, Scottish Renewables and the Green Alliance are among the other organisations that have also immediately welcomed the review, but the latter has also warned that, with 67 separate recommendations, there is a risk Helm’s review is so broad that “the Government will cherry pick the bits it prefers”. 

The Government has said it will shortly be seeking the views of industry, businesses, academics and consumer groups on Professor Helm’s review.

Luke Nicholls