Britain’s green energy policy has been a significant policy failure.
In August the government commissioned the Oxford academic Dieter Helm to conduct an independent review into Britain’s energy market. At the time it was thought by some to be an alternative to the government’s manifesto commitment to impose a price cap on domestic energy bills. But Theresa May unwisely doubled up on that commitment in her Tory conference speech earlier this month.
The Cost of Energy Review, Professor Helm’s report, just published, is nonetheless important. It finds that the record of government interventions has been poor, not least because there have been far too many. As he puts it: “The scale of the multiple interventions in the electricity market is now so great that few if any could even list them all and their interactions are poorly understood. Complexity is itself a major cause of rising costs.”
Consumers are losing out. For the past three years, in a development unforeseen by either the Department of Energy and Climate Change or the Committee on Climate Change, the prices of oil, gas and coal have fallen significantly. So too has the price of renewables. Yet thanks to policy, regulation and market design, which Professor Helm says are not fit for purpose, energy users are not benefiting.
Tied to that and echoing a point we have often made here, government interventions in pursuit of climate change targets have not only been done in a way that imposes excessive costs on consumers — officially estimated at 20% of electricity bills or more than £100bn by 2030 — but could almost have been designed to lower public support for a green strategy. It’s of a piece with the government’s support for ever-increasing bills for foreign aid. The poor are made to pay to salve the consciences of the do-gooding rich.
“The cost of energy is too high and higher than necessary to meet the Climate Change Act target and the carbon budgets,” Professor Helm concludes. “Households and businesses have not fully benefited from the falling costs of gas and coal, the rapidly falling costs of renewables, or from the efficiency gains to network and supply costs which come from smart technologies. Prices should be falling and they should go on falling.”
Some of these problems are home-grown. Others reflect the EU renewables directive. Its definition of renewables has been “a major contributor” to raising the costs of reducing carbon emissions above what was necessary. Either way, there has been a significant policy failure. It is this, rather than artificial price caps, that the prime minister needs to address.