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Call for ‘radical’ UK energy market reform

7/9/2022

Electricity pylon looking up from below Photo: Pixabay
Calls for immediate energy market reform, including caps on the price that electricity generators receive, are being made in order to help alleviate the UK’s cost-of-living crisis

Photo: Pixabay

Five energy grandees, including two past Presidents of the Energy Institute (EI), have written in The Times, calling for ‘radical’ and ‘immediate’ reform of the UK’s ‘broken’ energy market. They propose a cap on domestic electricity wholesale prices for non-gas generators, with domestically produced gas prices also capped.

Mark Carne CBE FREng, former CEO, Network Rail; Malcolm Brinded FEI, former EI President; Sir Frank C, former CEO, BG Group; Steve Holliday FREng FEI, former CEO, National Grid and former EI President; and Mark Moody Stuart, former Chairman, Royal Dutch Shell, state that the sector is ‘broken’ because the UK’s electricity is tied to global gas prices even though imported gas makes up less than 20% of the country’s electricity generation.

 

They say the current energy crisis will be ‘disastrous for consumers and businesses’ and that the help currently being proposed is merely a ‘short-term fix’ that ‘falls far short of the country’s actual needs’. Instead of ‘targeting handouts after the fact’, which is far less effective than reducing energy prices at source in the first place, they are calling for a more radical move to reform the way in which the UK’s energy markets work: ‘Reform that would show that new leadership was capable of taking the tough decisions.’

 

It is proposed that domestic electricity wholesale prices for non-gas generators (mainly, nuclear, wind and solar) should be immediately capped, with domestically produced gas prices also capped. They suggest that these caps could be set at levels that ‘reflect the investment risk and ensure that well-run energy producers are profitable and want to continue investing in the energy transition’.

 

Noting that ‘we need security of supply as well as a move away from fossil fuels’, the letter explains that the caps would ‘materially reduce the impact of the energy crisis and significantly reduce the compounding effect that energy costs have on inflation’.

 

The European gas market has been dominated by Russia for decades. However, the letter concludes that: ‘Moscow’s actions are now directly setting the astronomic prices of both gas and electricity, with truly disastrous economic and social consequences. This is likely to remain so throughout this decade unless we truly “take back control”, not from Brussels but from Moscow.’

 

Echoing this sentiment and noting that it will take ‘political will and leadership to alleviate the hardship of households and businesses’, Professor Rob Gross FEI, EI Trustee and UK Energy Research Centre (UKERC) Director, outlined an alternative Contracts for Difference concept in New Energy World’s 13 July 2022 issue that he believes could help tackle the energy crisis. Similar efforts to decouple electricity prices from wholesale gas prices are under way in the European Union.

 

Action to help households is needed on the demand side too. At the recent launch of the EI’s Energy Barometer, the current EI President, Juliet Davenport OBE HonFEI, stated that energy efficiency and the demand side should be treated as a ‘national emergency’.