Energy costs remain high on the agenda for both households and businesses, and is a core part of the government’s Industrial Strategy alongside clean growth. With that in mind the CBI welcomed the government’s decision to commission an independent Cost of Energy Review, which was undertaken by Professor Dieter Helm and published in October 2017. The review sought to understand how the objectives of delivering secure, affordable and low-carbon energy could be met at the lowest cost, considering all aspects of the electricity supply chain.
The CBI responded to the Department for Business, Energy and Industrial Strategy’s (BEIS) Call for Evidence following the review’s publication, welcoming Professor Helm’s work as a positive step towards considering the challenge of how the UK can best achieve its decarbonisation and security of supply objectives at the lowest cost to consumers.
The Cost of Energy Review rightly highlighted the complexity of the current policy landscape, and the impact this has on consumers. The review also identified some key principles – system efficiency and simplicity, a market-led and technology-enabling approach and greater transparency – which align with those identified in the CBI’s 2017 report, Stepping up to the challenge.
Sustained policy consistency
The CBI’s response argued that Professor Helm’s review should not be considered in isolation, but in the context of a fast-changing policy and political environment, including the publication of the Clean Growth Strategy and Industrial Strategy, the introduction of legislation to cap domestic energy bills and new controls on low-carbon incentives set out in the 2017 Autumn Budget.
As such, the CBI urged the government, in considering the review, to take an approach of continual, incremental improvement, providing policy consistency to maintain business and investor confidence. Specifically, the response called on the government to:
- Continue with the current regime of competitive auctions for low-carbon power and back-up capacity through Contracts for Difference and the Capacity Market, ensuring all cost-effective technologies can compete.
- Work with business to consider a long-term post-Brexit carbon pricing regime which works for all parts of the economy
- Build on progress and recommendations within the Smart Systems and Flexibility Plan before considering further changes to the electricity networks
- Ensure that any intervention to electricity supply is carefully designed to improve transparency and engagement, and allow for continued competition and innovation
A broader view of energy costs
The Cost of Energy review focused, in line with its Terms of Reference, largely on the component parts of the unit price of electricity. However, when looking at the overall cost of energy to consumers, both business and domestic, it is important to consider the volume of energy used, as well as the price per unit. To this end, the CBI’s response urged the government to give significant attention to the role of energy efficiency in helping to manage energy costs into the future.
To ensure successful outcomes for all consumers, a ‘whole system’ approach that considers where improvements in energy efficiency can be made, as well as the role of technology in delivering a smarter, more flexible and decentralised system will be key.
For more information, please contact Hannah Richmond