A new review of the UK’s energy sector, conducted by Professor Dieter Helm, Economic Fellow and Professor of Economic Policy at Oxford University, suggests that British consumers are paying more than they need to for energy bills and for many, prices have ‘gone up, not down’.
The independent review was commissioned by the government to consider the current state of energy usage and how bills could potentially be reduced, in line with climate change targets.
Professor Helm evaluated the electricity supply chain from generation through to distribution and eventual supply and concluded that people were paying too much for energy. He observed that energy-users should have benefited more from decreasing costs of gas and coal, which despite government predictions to the contrary, had dropped significantly in the last three years. Renewable energy sources have also fallen, thanks to improved technical efficiency gains from smart technologies such as battery power.
The report notes that: ‘New technologies should mean lower, not higher, costs and much greater scope for energy efficiency. Households and businesses have not benefited as much as they should because of legacy costs, policies and regulation, and the continued exercise of market power.
‘Prices should be falling and they should go on falling in the medium and longer terms.’
The review recommends a new fixed default tariff to replace current variable tariffs. Although the introduction would not cap energy prices themselves, it would forcefully limit profits made by energy companies.
Professor Helm pinpoints government intervention as likely being the root cause of these cost inconsistencies and as a result triggering unintended consequences, such as new costs. He asserts that the scale of government involvement in the electricity market has become ‘so great that few, if any, could even list them all.’
The report recommends radically scaling down this action and simplifying the government’s role in the industry process. Failure to do so will likely heighten the ‘crisis mentality’ of the industry, and these crises will worsen over time.
Professor Helm notes: ‘We can and should, do much better, and open up a period of falling prices as households and industry benefit from the great technological opportunities over the coming decades.’
Speaking on behalf of the UK government, in response to Professor Helm’s review, Greg Clark, Business and Energy Secretary, said: ‘I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings.
‘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.’