Energy Regulation

Developments from 2017

The Conservatives did badly in the 2017 General Election and dropped several of their campaign promises, including the promise to cap certain energy bills.

Citizens Advice then drew attention to the high profits being made by the 'natural monopoly' network operators, attributing those increased profits to Ofgem's (understandable) failure to predict current low interest rates, and its (less understandable, and alleged) failure to properly investigate the capital cost of building and expanding the networks. Ofgem - probably sympathetic but reluctant or unable to re-open the current price control - responded by saying the Citizens Advice had raised some important issues which would be addressed in the next price control.

Centrica/British Gas announced a 12.5% electricity price increase in August 2017 which was met with predictable fury, despite the fact that this particular company had held prices steady since 2013. BG responded by claiming that energy policies would soon represent a larger part of an electricity bill than wholesale costs. If the carbon tax were included (and not counted as part of the wholesale price) they would hit £165 per household in 2018, up from£81 in 2014. (Other policy costs included subsidy schemes for renewables, smart metering and subsidies for conventional coal, gas and nuclear plants.) Wholesale electricity prices had fallen from £170 to £134 over the same period.

The Helm Review

Shortly after BG's announcement, the government announced 'an independent review into the cost of energy [to be chaired by Dieter Helm] which would recommend ways to keep electricity prices as low as possible, while ensuring the UK meets its climate targets' (emphasis added). Professor Helm was quoted as saying:

'I am delighted to take on this Review. The cost of energy always matters to households and companies, and especially now in these exceptional times, with huge investment requirements to meet the decarbonisation and security challenges ahead over the next decade and beyond. Digitalisation, electric transport and smart and decentralised systems offer great opportunities. It is imperative to do all this efficiently, to minimise the burdens. Making people and companies pay excessively for policy and market inefficiencies risks undermining the objectives themselves. My review will be independent and sort out the facts from the myths about the cost of energy, and make recommendations about how to more effectively achieve the overall objectives.'

Comment: It was not entirely clear whether the review would focus 100% on electricity prices (and not look at domestic gas prices). But it will not revisit the argument about price caps, instead focusing - very sensibly - on underlying cost issues.

It also emerged that Professor Helm already had quite strong views about energy policy, and had been given only 30 working days in which to report. There would clearly be no opportunity for serious consultation or reflection. He was clearly expected to tell the government what it wanted and expected to hear.

Battery Capacity

Battery capacity (in cars as well as power stations) will be the key to making full use of usually-intermittent renewable generation. It was therefore interesting to read the September 2017 announcement that Drax, the country's biggest power station, intended to develop battery storage that could deliver up to 200 megawatts of power - around the same sort of output as a smaller power station. This would certainly be an impressive achievement although Drax will not yet be drawn on how long such an output might be maintained. Two or three minutes would be of no use to anyone. Two or three hours, implying usable battery capacity of 400+ MW-hours would be quite something.

Martin Stanley