Upcoming Event
To mark the launch of National Grid ESO’s Future Energy Scenarios 2022, Onward is hosting a discussion on UK energy security. We ask how the Government can enable an energy system that is secure, clean, affordable and fair in the context of Net Zero commitments.
This event will also be livestreamed via the National Grid ESO website here.
If you would like to attend this event or find out more, head to our website here.
Onward Note
Energy bills are shooting up. And things will get worse in October when the Energy Price Cap rises again. The Chancellor recently announced a cash injection to soften the blow. But, more fundamentally, all he can do is to offer short-term help.
Without a long-term cure, we could be back here in a few months’ time. So, whilst the Government’s short-term fix is welcome, it’s not enough on its own. We need sustainable solutions.
What would that involve?
To start with, we should modernise the energy price cap when it returns to Parliament later this year. It was introduced to kill off the ‘loyalty penalty’, where loyal customers were charged more than people who switched.
It has done this, but only by forcing energy companies to sell energy below cost, contributing to some going bust. The cost of failures is covered by bills, pushing them up further.
Clearly, the price cap needs to change. Fortunately, there’s a system that works well in insurance. They’ve made it illegal to charge loyal customers more than someone who switches.
But updating the price cap alone isn’t enough.
The real problem is the skyrocketing international wholesale price of gas. Our electricity bills follow gas prices, even though they don’t impact the cost of renewables. The cost of renewables has fallen massively, but it isn’t showing up on bills.
Any long-term solution must include redesigning the market so we keep our net-zero promises, but more cheaply and reliably than today, no matter what’s happening in the international gas market.
What would that look like?
We must be more self-sufficient. And we must have a mix of technologies and fuels, based on the cheapest long-term contracts so bills are less likely to spike.
The Government also needs to stop picking winners.
Recent governments have introduced a byzantine array of schemes to support different technologies. But as Onward’s new report sets out, with almost all new projects getting some taxpayer-funded support, it’s not hard to see why it’s created a boom for lobbyists, with all the costs ultimately being passed on to customers.
We should let energy firms find answers rather than politicians picking winners.
Last but not least, we must modernise the grid so it can cope with more electric cars and small renewable generators, and can discount electricity for local consumers if there’s a surplus from Cornish solar farms in the middle of the day, or spare power from Scottish wind farms overnight. This could cut billions off bills every year.
If we’re looking for a sustainable long-term answer to give us hope alongside Rishi’s short-term help, this is where we should start.
Ed Birkett,
Head of Energy and Climate at Onward
A version of this note originally appeared in Times Business as a joint comment piece by Ed Birkett and John Penrose MP.
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