Comment on Dieter Helm's cost of energy review

Commenting on Dieter Helm’s cost of energy review, commissioned by the Department for Business, Energy & Industrial Strategy, which has been published today, Michael Grubb, Professor of International Energy and Climate Change Policy, UCL, said:

“There is a lot to agree with here – and much to chew on. But it would help if Helm acknowledged that the dramatic technology cost reductions he highlights were largely driven by the kind of policies he now suggests should be phased out. Policies need to evolve, but in ways that continue to support new waves of innovation.

“His proposal that renewables contracts should be ‘merged into a unified equivalent firm power (EFP) capacity auction’ so that the ‘costs of intermittency will then rest with those who cause them’ risks making the system less efficient, because backup should come from the cheapest source and only as much as the system overall needs - we don’t expect other generators to pay directly for backup should their own turbines fail.

“So on this: right problem, wrong answer. The fundamental benefits of having an integrated system – when the whole is more efficient than sum of its parts – need to come first.”

Richard Black, director of the ECIU, said:

“Professor Helm says much that is unarguable – the future of energy doesn’t look like the past, it’s being shaped by smart technology and ever-cheaper renewables, and that means the traditional big corporate model with passive consumers is on the way out. He also picks up the point that electricity distribution companies’ big profits are among the factors pushing up bills.

“But there are some strange holes in the review – for example, on energy efficiency, where he recognises the huge benefits of improvements, not least in reducing people’s bills, but produces no policy ideas to accelerate their uptake. There’s also more than a hint of alarmism in the frequent statements that electricity system capacity margins are dangerously low, when there’s been no power cut relating to a shortage of generation for well over a decade.

“Overall, the review is a bit like a Harry Potter packet of Bertie Bott’s All-Flavour Beans – there are plenty of chocolate ones for sure, but a fair few rotten eggs and, unfortunately, the occasional piece of tripe.”

ECIU analysis published today shows that the current block on the cheapest form of power generation, onshore wind, could cost £1bn over 4-5 years relative to deploying other technologies.

A recent study from Imperial College concluded that despite regular discussion of ‘blackouts’, “fears of imminent power cuts are not well founded” and the “UK’s electricity system has remained secure over the past several years and key measures of reliability are expected to improve in the near future.”

An ECIU report published earlier in the year found that profits of the firms responsible for distributing electricity to homes and businesses had added £10bn to bills over six years.

Dr Jonathan Marshall, ECIU energy analyst, said:

“In a rush to shoehorn in his favourite economic theories, Professor Helm has overlooked what is happening on the ground today. He misses an open goal by claiming that renewables may not be subsidy free by 2020, when some, like onshore wind, are there already. Increasing deployment of these renewables would bring down consumers’ bills, yet such a recommendation is strangely absent from the review.

“While Helm is right in saying that a more uniform and systematic carbon tax would be a good idea, introducing one has proven politically difficult in a number of countries. And the proposal for border adjustments is simply not credible, especially now that the government is engaged on a quest to tie up free trade deals around the world.

“On a wider point, the review doesn’t reflect the many good things that UK energy policy has achieved, nor that far fewer people are concerned about energy bills now than they were five years ago. In the face of many obstacles, the UK is effectively decarbonising the power sector while keeping bills down and the supply highly secure – and that success should be acknowledged.”