Dieter Helm Energy Review

Patricia Gibson Excerpts

Tuesday 24th April 2018 Westminster Hall

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

I express my thanks to the hon. Member for Blackley and Broughton (Graham Stringer) for securing this debate. I am pleased we are having this debate on the cost of the Dieter Helm independent review, launched by the Department for Business, Energy and Industrial Strategy and led, of course, by Professor Helm, an economist specialising in energy. Such a review is a rather important matter. Therefore, it was extremely disappointing that it was announced by BEIS on a Sunday in the peak of the August holiday season last year and was scheduled to last a mere 30 days.

The review was set in the context of rising customer concern about power prices, which were set to increase by 15%, following the decision by British Gas to increase electricity prices by 12.5% on average, despite falling wholesale prices. Although UK domestic power tariffs remain low relative to other countries in the EU, they are rising, and for industrial users, they are the third highest of 15 European countries, according to the UK Government’s figures. One reason is increases in climate-related policy costs, which make up a growing proportion of the average energy bill.

The review’s terms of reference are about ensuring energy is affordable for households and businesses. It sets out 11 short bullet points and reiterates the laudable ambition to have the lowest energy costs in Europe for homes and businesses. However, the expert panel of five working alongside Professor Helm lacked a consumer voice, although manufacturing was represented. I do not understand why that was the case, but perhaps the Minister can shed some light on it.

Although the review was independent, with the purpose of reviewing the cost of energy, it focused on electricity. The Government said:

“The specific aim of this review is to report and make recommendations on how”

carbon and energy security aims

“can be met in the power sector at minimum cost and without imposing further costs on the exchequer.”

Indeed, the Government recognised that, although the UK has some of the lowest gas prices in Europe, our electricity prices are less competitive, compared with those for households in Europe, and are among the most expensive for the industry. Bills are about volume, not just price. For example, average domestic electricity prices in the US are half those of the UK, but bills are higher because the more energy-efficient UK homes have less waste. The same can be said of gas.

As well as the fact that the review was restricted to electricity, utility firms’ pricing and profits were not included, which some might argue was a missed opportunity. The Government have rejected the idea that the review was too narrowly based on Professor Helm’s opinions and too brief to unearth any valuable new evidence. Does that remain their view? How on earth can anyone seriously consider the cost issues facing UK energy without looking at the £20 billion Hinkley Point reactor project? I know that many in the energy industry agree with that.

There has been much debate about various aspects of this report, and that is as it should be. The report’s two main findings are that the cost of energy is significantly higher than it needs to be, and that energy policy, regulation and market design are not fit for the purposes of the emerging low-carbon energy market, but I believe we have to focus on the cost of energy to the consumer. The report makes it clear that, since late 2014, the price of oil, gas and coal has fallen significantly, the price of renewables has fallen, and there is downward pressure on the cost of transmission, distribution and supply. New technologies should mean lower, not higher, costs, and much greater scope for energy efficiency. Margins should fall as competition increases, yet Professor Helm points out—if we accept this—that households have seen few benefits from the cost reductions. Prices have gone up, not down, for too many consumers.

I am sure I do not need to tell the Minister about the strain that the unnecessarily high costs for households put on household budgets across the UK. Indeed, Professor Helm warns that such costs risk undermining the broader democratic support for decarbonisation. The Climate Change Act 2008 estimates that the cost of decarbonising electricity is about 20% of typical electricity bills, and it is thought that such legacy costs will amount to well over £100 billion by 2030. Professor Helm concludes that much more decarbonisation could have been achieved for less, and that costs should be lower and falling further. I am interested to hear the Minister’s reflections on that.

As Professor Helm identifies, the problem is that those higher than necessary costs are locked in for at least a decade, despite the Government’s welcome temporary price cap, due to contracts that the Government entered into. We need a way to reduce the burden imposed on consumers and businesses and ensure that decarbonisation costs are more transparent, at the very least.

There is no doubt a difficult balance to strike between costs and the challenges that the electricity and energy system will face in the next decade and beyond. Carbon budgets need to be met as we invest in new technologies that come on stream. We are living through a technological transformation, and electricity is increasingly the dominant energy form.

Professor Helm is clear that the 2050 carbon target could be met at a lower cost. It could perhaps even be met early, which would be of real benefit to households and the entire industry. Does the Minister have any thoughts about that? It is important that we consider Professor Helm’s work more carefully than is possible in a 90-minute debate, because our wider economic needs, and our ability to meet our energy demands and deliver our carbon budgets may, as Professor Helm points out, depend on it. We must also be extremely mindful when we attempt to break out of the high costs of our energy system, which locks too many households into fuel poverty. There are opportunities in the energy market, and I am extremely interested to hear how the Minister intends to capitalise on them for the sake of consumers, businesses and the delivery of our carbon budgets.

We cannot take Professor Helm’s conclusions as gospel, and nor should we. Indeed, in the past his work has not been short of critics, but it always provokes debate. It seems that Governments have pretty much ignored much of what he has said in the past. I am interested to hear about how his work will inform the Government’s approach as we face the future in this field, and about how consumers can remain at the heart of this process.