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New Energy World magazine logo
New Energy World magazine logo
ISSN 2753-7757 (Online)

UK government introduces new Energy Prices Bill


View of Houses of Parliament, London Photo: Pixabay
The new Energy Prices Bill introduced in Parliament last week provides the legislative footing needed to ensure that people and businesses across the UK receive government support to help pay their energy bills this winter

Photo: Pixabay

The UK government has introduced new emergency powers that will ensure consumers across the country receive help with their energy bills this winter.

UK businesses and consumers had been facing the prospect of increasing financial turmoil as energy bills escalated out of control, until a support package was recently announced by the government. The measures unveiled will see a typical household pay £2,500/y for energy, while businesses will be paying less than half of predicted wholesale costs this winter.


The new Energy Prices Bill, introduced in Parliament on 12 October 2022, now provides the legislative footing needed to ensure that people and businesses across the UK receive this support through the Energy Price Guarantee for domestic consumers and Energy Bill Relief Scheme for businesses and non-domestic properties. This includes essential measures that enable the UK government to deliver comparable schemes in Northern Ireland and legislation that will require landlords and heat network operators to pass benefits through to tenants.


The Energy Price Guarantee was originally put in place for two years. However, the UK’s new Chancellor of the Exchequer Jeremy Hunt – who replaced Kwasi Kwarteng on 14 October 2022 – announced earlier this week that the household cap will now only be guaranteed for six months, until April 2023. It will then be reviewed in a bid to cost taxpayers less and better target the support. There will also be a focus on incentivising energy efficiency. Business support via the Energy Bill Relief scheme remains limited to six months, until 31 March 2023, as previously announced.


In the UK market, wholesale electricity prices are set by the most expensive form of generation – currently gas-fired generation, which are significantly higher in light of Russia’s invasion of Ukraine and Putin’s subsequent weaponisation of gas supplies. Low carbon electricity generators are therefore benefitting from abnormally high prices, while consumers are having to pay significantly more for energy generated from renewables and nuclear, even though they often cost less to produce.


To further protect consumers, new powers to help sever the link between high global gas prices and the cost of low carbon electricity were also introduced earlier this month through a new temporary Cost-Plus Revenue Limit in England and Wales. This will reduce the impact of unprecedented wholesale prices on consumers and the taxpayer by introducing a revenue limit, curbing the amount generators can make.


The precise mechanics of the temporary Cost-Plus Revenue Limit will be subject to a consultation to be launched shortly.


The full scope of coverage of the Cost-Plus Revenue Limit is also still being determined, but the government says it will apply to low carbon generating assets not currently covered by a Contract for Difference (CfD). Expected to be in place from the start of 2023, the revenue limit will apply in England and Wales. The UK government is liaising with the Scottish government to confirm whether the measure will extend to Scotland. The legislation already allows for a temporary revenue limit to apply in Northern Ireland.


This is planned to be a temporary measure to deal with the exceptional market conditions driven by high global gas prices in light of Russia’s invasion of Ukraine, and it is anticipated that this will ‘endure until such time as the markets return to normal or generators move onto other market arrangements, such as a Contract for Difference’, states the UK government. It says the limit will ‘still allow generators to cover their costs and receive an appropriate revenue that reflects their operational output, investment commitment and risk profile’.


The detail of the appropriate price for the Cost-Plus Revenue Limit is currently being worked on, but one relevant factor being considered is the pre-crisis expectations for wholesale prices, and what a reasonable upper estimate for what those might be. The UK government says it is ‘focused on ensuring that the market continues to function with an appropriate signalling to incentivise dispatch at times of system need’. As a result, it is ‘considering an arrangement that allows generators to keep a proportion of their revenue above the limit’.


The government says it recognises the importance of dispatchable and baseload generation for security of supply, and the importance of continued investment in these supplies. The low carbon technologies that can deliver these types of power tend to have higher input costs (such as biomass and nuclear) and this is reportedly being considered as part of the detailed policy design.


‘This intervention differs from a windfall tax as it will be applied to excess revenues generators are receiving, as opposed to applying to all profits,’ notes the government.


It adds that it remains ‘committed to supporting investment into the renewables sector’, and the next allocation round of the Contracts for Difference support scheme for the deployment of new generation will launch in 2023 as planned.


It is understood that generators will also continue to receive their existing revenue support or subsidy payments, for example Renewable Obligation Certificates, which will help preserve market stability.


More UKCS blocks up for grabs
In related news, following the UK North Sea Transition Authority (NSTA) last week launching the UK’s 33rd offshore licensing round as part of government plans to boost security of energy supplies, a further 34 blocks have now been opened to bids.