BEIS confirms fresh independent review to “sort out the facts from the myths” about energy costs

On 6 August 2017, the Department for Business, Energy and Industrial Strategy (BEIS) announced an independent review of energy costs. The review is to be led by Professor Dieter Helm CBE, one of Britain’s leading energy experts. The Helm Review is the latest in a growing list of political and regulatory interventions in the energy sector. It seems unlikely to be the last.

What will the Helm Review cover?

Building on the commitments made in BEIS’s Industrial Strategy Green Paper published in January 2017, the Helm Review will investigate how the energy industry, government and regulators can achieve BEIS’s overarching objectives – low energy costs and ensuring security of supplies, whilst meeting the UK’s domestic and international climate targets in the most cost-effective way. The review will, amongst other things, consider:

  • the implications of the changing demand for power;
  • opportunities to reduce costs at all levels of the electricity supply chain, including generation, transmission, distribution and supply;
  • options for a long term road map for the power sector and the impact of technological changes; and
  • factors affecting energy bills, including energy and carbon pricing, energy efficiency measures, distributed generation, network regulation, innovation and R&D.

Professor Helm has welcomed the opportunity to conduct this review and pledged to “sort out the facts from the myths about the cost of energy, and make recommendations about how to more effectively achieve the overall objectives”.

However, the Helm Review has prompted a mixed response. While some commentators welcome the opportunity for greater transparency and savings, others fear that Government is kicking any decisions further into the long grass.

Energy market in the spotlight again

The Helm Review – launched days after British Gas’s announcement to increase its electricity prices by 12.5% from September 2017 – is the latest in a line of interventions, studies and reforms in the energy sector:

  • In June 2016, the Competition and Markets Authority (CMA) concluded its 18-month investigation into the supply and acquisition of gas and electricity in the UK retail and wholesale markets. The CMA identified a range of concerns that impede competition in the retail market and proposed a suite of measures to address these (see BLP article CMA proposes shake-up to spur competition in the UK energy market). Remedies included a transitional price cap for pre-payment meter customers, which came into force on 1 April 2017. The CMA also criticised previous interventions by Ofgem and removed the rules on ‘simpler choices’ (the ‘four tariff rule’), which was introduced following Ofgem’s Retail Market Review (see BLP article Ofgem publishes consultation into the future of retail market regulation).
  • The Helm Review can also be considered in the context of Ofgem’s Targeted Charging Review (TCR) Significant Code Review (SCR), which was launched on 4 August 2017. The SCR was also driven by concerns about the scale of subsidy costs for small-scale generation. The SCR seeks to address concerns that the current framework for residual charging may result in adverse impacts on residential and small business consumers who are unable to adjust the timing and volume of their electricity consumption to reduce their exposure to charges. This follows Ofgem’s “minded to” decision to reduce the “embedded benefits” payments to small-scale energy generators for producing electricity at peak times, and its intention to consider further the possibility that this may incentivise generation to move “behind the meter” to net off customer’s metered consumption and reduce charges.
  • More broadly, regulated utilities have been under sustained regulatory and political scrutiny relating to issues such as governance structures, investment financing, the scale of regulated returns, and charges. For example, both main political parties have proposed some form of energy retail price regulation, and the opposition Labour Party has advocated renationalisation of certain privatised utility networks.

Outside energy-specific developments, it is also difficult to separate the review from the Government’s wider “whole economy” proposals. For example, in September 2016, in the context of granting approval to the development of Hinkley Point C nuclear power station, the Government announced plans to introduce new controls over foreign investment in the UK’s “critical infrastructure” (see BLP article Hinkley, golden shares and protectionist time travel?). Whilst it is clear that the meaning of “critical infrastructure” includes nuclear energy, it remains to be seen if the definition will extend to other forms of energy generation and delivery infrastructure, and, therefore, the extent to which measures such as these will have a disproportionate effect on the energy sector and energy costs.

Next Steps

The Helm Review is expected to report by the end of October 2017. It is not yet clear whether this will be the last – or simply the latest – in a series of such reviews.

 

Source : https://www.lexology.com/library/detail.aspx?g=2cfb4112-1884-4ac4-a9e6-c578324a5eac

SMART GRID Bulletin July 2017


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