The UK’s House of Lords Economic Affairs Committee has today launched a new inquiry into the economics of the UK energy market.
UK energy policy over the last decade has focused on three objectives:
- maintaining continuous supplies of energy and minimising threats to energy security;
- ensuring that the costs of energy supply are competitive for business and individual users; and
- progressively decarbonising the mixture of energy used in the UK as a contribution to the international effort to minimise the risks of climate change.
The accelerated closure of coal-fired plants, and subsidies for renewables, have been the principal means of securing decarbonisation. Paying for subsidies by charges on consumers, rather than from taxes, has meant that prices have risen while the resultant lack of investment in baseload capacity means that continuity of supply is now seriously threatened. This suggests a dysfunctional energy market or a conflict of government policies.
The Committee will consider whether the present mix of policy interventions and subsidies in pursuit of those objectives have led to failures in the energy market. It will look at what measures are required to correct these failures.
The Government’s commitment to reducing carbon emissions is taken as given so the inquiry will not consider arguments about the science behind climate change.
Areas the Committee are inviting evidence on include:
- What are the key economic challenges for the energy market which the Government must address over the next decade?
- Has the market and the Government responded effectively to changes in external circumstances, such as significant shifts in technology and prices?
- What are the emerging technologies which could materially change the energy market over the next decade and beyond? How should the Government promote research and development- could any shift in public funding improve the efficiency of the energy market? How long might it take for new technologies to displace the established capital stock?
- What should the future balance between the roles of the public and the private sector be? Is further expertise needed within Government to understand the issues and to negotiate with external investors and suppliers?
- Are returns for private investment in the sector adequate or excessive? How should the Government attract sufficient investment?
- What is the relationship between high energy costs and the loss of industrial capacity in the UK? What measures should be taken to address this?
- What preparations could be made to cope with the risk of a shortfall in energy supply? What would be the cost to the economy of the breakdown of the existing system?
- What alternate ways of pricing energy should be considered to reduce the burden of high energy bills, in particular on less well-off consumers?
Speaking about the inquiry, Lord Hollick, chairman of the Committee, said: "In the Committee’s report into the economic impact on UK energy policy of shale gas and oil in May 2014, we concluded that there had been a lack of clarity and consistency in energy policy over many years.
“This failure of policy had left the UK dangerously close to lacking sufficient electricity generating capacity. Over two years later, little has changed. Coal power stations are being closed and old nuclear stations are coming towards the end of their life. But it is not clear how they will replaced and at what cost.
"The core question for the Committee is are there failures in the energy market and what measures are needed in the future to correct them?
"The risk of widespread power cuts is low. The question is the price that taxpayers and consumers are going to have to pay to ensure that risk remains low. The energy market involves an extraordinarily complicated mix of policy interventions and subsidies. Every investment in electricity generating supply is effectively determined by the Government. This inquiry will seek to investigate whether current policy is delivering the best deal for energy users and whether it is striking the correct balance between private and public sector involvement.
"I would invite anyone interested in this area to send us their evidence by 30 September so they can help us with our inquiries into what is a matter that affects every person in the country."