UKERC response to the Cost of Energy Review

04 Jan 2018

We welcome the opportunity to comment on the findings of the Cost of Energy Review, conducted by Professor Dieter Helm. In our response, we address most of the questions set out in the Call for Evidence from BEIS. Before turning to these specific questions, we have three general observations about the Review and the Call for Evidence.

First, whilst the review title focuses on the cost of energy, this is misleading. The terms of reference and the Review report make it clear that the main focus is electricity rather than energy in general.

This distinction is important since the data shows significant differences in the position of UK electricity and gas costs when compared to costs in other countries. There are also differences between relative costs for households and relative costs for business energy consumers. UK electricity prices are higher up the European league table than prices for gas. As shown in the figure below, electricity prices for energy intensive industries in the UK are particularly high.

Source: HM Government (2017) The Clean Growth Strategy.

 

Our second comment is that there are important distinctions between prices, costs and bills. Whilst much of the debate focuses on prices, the costs of energy for consumers also depends on their energy consumption. Therefore, it is also important to consider energy efficiency of buildings, appliances and industrial processes since these are a key determinant of costs.

Our third comment is that costs need to be considered for the electricity system as a whole. Whilst the separate questions in the Call for Evidence about generation, networks and retail supply are understandable, costs to consumers partly depend on interactions between these components of the electricity system. This compartmentalised approach to the evidence base could mean that some of these systemic interactions are missed.