UK: Industry bodies respond to Cost of Energy review

Professor Dieter Helm was commissioned in August by the UK Government to put together an independent review into reducing costs across the electricity supply chain. On Wednesday of this week, Helm published his findings in the form of a report entitled Cost of Energy Review.

“Homes and business depend upon reliable, affordable power and the government is ambitious in its plans to keep costs as low as possible for them over the coming decades,” stated Business and Energy Secretary Greg Clark, announcing the publication of the report. “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. I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings.”

Among the reports key findings are that consumers have not yet seen the full benefit of falling generation costs, due to legacy costs, regulation and the continued exercise of market power. Helm recommends increased use of capacity auctions and a higher carbon price, with the phasing out of FITs and low carbon contracts for difference.

The report also recommends the establishment of national and regional system operators in the public sector to manage transmission and distribution, opening up competitive bidding in this area also for grid enhancements such as storage and demand side response.

Two influential bodies in the UK renewables industry; the Renewable Energy Association (REA) and the Solar Trade Association (STA), issued public responses to the Helm report. Both are broadly in agreement with its requests for major reform in the UK energy sector, but frustrated by what could be seen as continued ignorance of the potential for renewable sources, and in particular solar, by the Government as potential cornerstones of a future energy system.

“We are glad the report notes the huge cost reductions renewables have had. We agree it is time for policy reform that gives industry longer term certainty about how the sector will be structured so that companies can make proper investments in manufacturing capacity, says REA’s Head of Policy and External Affairs, James Court. “The energy market is changing rapidly, and the future energy market can be lower cost, lower carbon and centred around the consumer. This report hints at the evolution of the industry, but perhaps doesn’t fully recognise the fundamental shift that is happening from centralised and inflexible generation to a smarter, more connected and decentralised energy system, and the policy framework needed to make that happen.”

STA’s response gave similar support to the report’s strategic goals, but was strongly critical of Helm’s comments that solar PV is ‘in need of R&D’.

“Even if we don’t agree with all of his answers, this Review is asking the big, strategic questions that need to be asked today, given massive technology change. Helm is also rightly looking at how to inject market forces back into energy policy for the benefit of consumers,” said STA Head of Policy Chris Hewett. “Something has gone very wrong with the Government’s approach to energy markets when the cheapest & most popular technology is shut out. We hope this Review will prompt an urgent rethink and without further prolonging uncertainty for our industry.”

The organization’s Chair, Jonathan Selwyn, also stepped into criticize the report’s lack of faith in solar and other renewable energy technologies, stating: “We welcome the report’s potential to open up much-needed discussion on fairer markets that deliver better outcomes for consumers. The solar industry stands ready to compete on an equal footing with other technologies. However, it is disappointing that the report gives the impression that support mechanisms for early stage renewables are the major cause of rising bills. Recent studies show that support measures drive down the price of renewables, have lowered wholesale prices, and we know that renewable power provides protection against the unpredictable volatility of fossil fuel prices.”

Professor Helm’s Cost of Energy was published on October 25th and is available in full via the UK Government’s website.