By Paul Homewood
The CPS is well known for challenging the left wing consensus, so it is doubly disappointing to see this report by John Penrose:
Press Release
As new government data shows that the UK has the most expensive industrial electricity prices in the world, four times those in the US and 46% above the International Energy Agency median, a new CPS report by John Penrose sets out how the UK can reduce the cost of its energy and find a cheaper route to Net Zero:
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Despite international gas prices coming back down in the aftermath of Russia’s invasion of Ukraine, British households are still struggling with high energy bills because of outdated regulations pushing up costs.
‘A Cheaper Route to Net Zero’ by John Penrose, former Conservative MP and minister, Competition Tsar, leading an independent review of UK competition policy, and co-chair of the Commission for Carbon Competitiveness’ argues that the current system is hostage to the volatile international price of gas, to our detriment, and that regulations dictating how energy firms should behave have become steadily more complicated, detailed, expensive and slow – adding to the cost of energy.
The paper sets out twenty recommendations which could be adopted by the new government to help bring energy bills down while still committing to decarbonisation.
The recommendations are broadly summarised as:
- uncoupling energy bills from the price of gas
- addressing the intermittency of renewable energy in the most cost-effective way
- slashing the cost of energy transmission with measures like ‘local discounting’ for customers who agree to pylons or onshore wind turbines being built near them
- cutting red tape and strengthening Ofgem’s commitment to competition
- reforming the Energy Price Cap
- levelling the playing field for UK manufacturers, including through the introduction of a Carbon Border Adjustment Mechanism (CBAM)
https://cps.org.uk/research/a-cheaper-route-to-net-zero/
Penrose long ago signed up to the Net Zero dogma, so is surely the wrong person to write a report on how to cut Net Zero costs.
This new report ignores the elephant in the room. It is Net Zero policy which is responsible for high electricity prices. Fiddling around at the edges, as Penrose suggests, will not alter that fact.
Direct subsidies for renewables, along with the cost of standby capacity already cost £11.5 billion a year. Add on grid balancing costs, carbon tax and FITs, and this swells to at least £15 billion.
This is equivalent to £50/MWh, a fifth of retail prices.
To that can be added the £100 billion of grid upgrades planned over the next ten years, necessitated entirely by Net Zero considerations.
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Penrose makes a big play of the fact that power prices have not fallen as sharply as gas prices since the peaks in 2022. He claims that this is the fault of our market system.
But the main factor has been the steady increase in renewable subsidies. Since 2019, these have risen by £3.6 billion, and will continue to rise in years to come.
There are other reasons why we have not seen the full effect of reduced gas prices in our bills.
Firstly the cost of gas power is artificially raised by carbon taxes. Secondly CCGT plants cannot run efficiently due to the intermittency imposed by wind and solar power, which effectively have priority access to the grid. If we used CCGT as a first resort, rather than a last, its cost would be much lower.
There is also the issue of coal to consider. Most EU countries still use plenty of coal for electricity generation – last year it accounted for 12%. This has helped to keep costs down at a time when gas is still dearer than it was before the Ukraine war.
Another factor is the mix of forward and spot buying on the market. The introduction of wind and solar power has led to the spot market being of much greater importance. This has brought much greater price volatility, and arguably higher prices overall. In an ideal world, electricity suppliers would source most of their power on the forward market, which CCGTs could provide at much lower prices as a result.
Perhaps the most ridiculous recommendation is the introduction of a Carbon Border Adjustment Mechanism, ie an import tariff on Chinese wind turbines and solar panels. The idea the UK manufacturers could make them as cheap as China does is absurd. The end result would be higher electricity prices.
If Penrose is serious about cutting electricity bills, there are things that could be done straightaway, for instance:
- Cutting carbon prices to zero – this would immediately reduce the cost of gas power, thus having an effect on wholesale prices which tend to be set by the price of gas.
- Cutting Renewable Obligation prices
- Cancelling all future CfD auctions – if renewables really are as cheap as claimed, they should be able to compete in the market without govt support.
The Penrose report sadly has missed a big opportunity to highlight to the public the obscene costs they are already incurring for Net Zero, and to propose radical changes while we still have a chance to pursue them. Worst of all, they have not told the public how much higher their bills will go in future to meet Miliband’s mad agenda.