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Response to the UK Government’s energy cap proposal from the Institute for Sustainable Resources
8 September 2022
The new PM and Cabinet have published a proposal for a temporary energy cap in the UK energy market. Is it the right approach? Prof Jim Watson, Director of UCL’s Institute for Sustainable Resources, has provided a response.
Prof Watson writes:
'The announcement of a cap on average bills at £2500 a year is welcome. But this is still extremely high by historical standards - and it will therefore be very difficult for some households on low / modest incomes to pay. Specific, additional support for them will be essential.
The intention to reform the electricity market is also positive, and will help to reduce the amount of government borrowing required. This includes plans to shift some renewables and nuclear generation onto new contracts that reduce the extent of windfall profits they are making. From past experience, we know that directly negotiating such contracts, which seems to be the current plan, can lead to poor value for money. But we also know from UK success with offshore wind that auctions can be used to deliver a much more efficient and low-cost outcome for consumers.
The moves to license new oil and gas fields and to lift the moratorium on fracking are unlikely to have a significant impact on energy bills, especially in the short term. It is essential that any new developments are compatible with statutory carbon budgets and targets. In particular, there is huge uncertainty about the economic viability of fracking, and it may take a long time to produce relatively small amounts of gas.
The big omission from today’s statement is - once again - a renewed plan for home energy efficiency. Energy efficiency of UK homes is poor by international standards, and means that energy price shocks hit UK households particularly hard. It should be a no brainer for the government to implement an ambitious new programme, and to reverse a decade of failed policies and inaction.'
Links:
- https://www.gov.uk/government/news/government-announces-energy-price-guarantee-for-families-and-businesses-while-urgently-taking-action-to-reform-broken-energy-market
- https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-default-tariff-price-cap
- https://www.ucl.ac.uk/bartlett/sustainable/research-projects/2022/sep/reforming-electricity-markets-low-cost-and-low-carbon-power
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