LONDON (Reuters) – The cost of energy in Britain is too high and is higher than necessary to meet the country’s climate change targets, an independent review has found.
The review, by Dieter Helm, professor of economic policy at Oxford University, put forward proposals on how to reduce costs in the entire chain of electricity generation, transmission, distribution and supply.
The review, commissioned by the government in August, said the prices of oil, gas and coal had fallen significantly since late 2014, contrary to the government’s modelling and estimates.
The price of renewable energy has also been falling fast.
“Productivity increases should have been putting further downward pressure on the costs of transmission, distribution and supply. New technologies should mean lower, not higher, costs
and much greater scope for energy efficiency,” the report said.
“Margins should be falling as competition should be
increasing. Yet in this period, households and industry have seen limited benefits from these cost reductions. Prices have gone up, not down, for many customers,” it added.
Energy bills have doubled in Britain over the past decade to an average of about 1,200 pounds ($1,500) a year, putting the biggest providers in the sights of politicians.
Earlier this month, the British government asked energy market regulator Ofgem to come up with a price cap on the retail energy sector that will last until 2020.
Britain’s energy market is dominated by the so-called big six firms – Centrica’s British Gas, SSE, Iberdrola’s Scottish Power, Innogy’s npower, E.ON and EDF Energy, which account for about 85 percent of the retail electricity market.
They cite higher wholesale prices and the cost of government policies to support renewable energy generation as the reason for higher retail prices.
“Households and businesses have not fully benefited from the falling costs of gas and coal, the rapidly falling costs of renewables, or from the efficiency gains to network and supply
costs which come from smart technologies,” the review said.
“Prices should be falling, and they should go on falling into the medium and longer terms,” it added.
The review was also critical of government renewable energy support policies and recommended that so-called feed-in tariffs and other low-carbon contracts-for-difference (CfDs) should be gradually phased out.
“Once taken out of the market, the underlying prices should then be falling,” the review said.
The government said it would seek the views of industry, businesses, academics and consumer groups on Helm’s review.
“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,” Greg Clark, the business and energy secretary, said in a statement.
The full review is available here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/654902/Cost_of_Energy_Review.pdf
(Reporting by Nina Chestney; Editing by Adrian Croft)