Re-monopolising power
Britain's electricity market is being hamstrung by too much regulation and uncertainty, according to a new study from Policy Exchange.
The research finds that costs are being piled on consumers, with generators waiting for government to centrally plan, and regularly fine-tune its plans, rather than seeking out the best investments and innovations to secure supplies and reduce carbon emissions.
Extra regulatory risk for those seeking to build power stations is likely to add £1.25 billion a year to the costs of new investment - equivalent to almost £50 for every household in the UK.
A healthy electricity generation market is vital if the right investment, operation and innovation decisions are to be made in a timely way to maintain security of supply and to lower carbon emissions while constraining rises in electricity prices.
But the heavy hand of regulation and centralised decision-making means that there is danger of slipping back to the situation before market liberalisation.
A large set of policy interventions currently affect decisions on investment and supply. They includes the Renewables Obligation and its "banding" to give different subsidy levels to different renewables, the Carbon Emission Reduction Target, EU Industrial Emissions Directive, EU Emissions Trading System, Climate Change Levy and Feed-in tariffs.
Government faces lobbying from more than ten UK sector representative demanding measures like subsidies for their particular generation technologies.
Key recommendations in the report include:
Radically simplifying current policy interventions.
Instead of complex subsidies for large-scale deployment of preferred technologies like offshore wind, government should focus on developing a credible, long-term, neutral carbon pricing framework - allowing the market to provide low-carbon, low-cost power.
Developing independent institutional arrangements to improve market confidence in the process of developing of climate-related regulation.
Simon Less said: "The competitive electricity market in Great Britain has been a major success story, emulated around the world. But the current road of incremental policy interventions is creating unmanageable uncertainty and gradually replacing market decisions and innovation with government planning.
"Unless reversed, such an approach will be much less effective in securing electricity supplies and lowering carbon emissions at least cost to customers.
"Unnecessarily raising electricity prices will harm UK competitiveness, increase fuel poverty and deter increased future electrification of the heat and transport sectors needed to meet climate targets."