Energy prices back in the political spotlight

March 9, 2017 3:33 pm

Energy prices have returned to the political agenda, after four of the Big Six energy suppliers announced plans to raise their standard electricity tariffs in the coming months. With Npower, Scottish Power, E.On and EDF announcing increases just weeks after Ofgem said there were “no obvious reasons” for doing so, Theresa May is under growing pressure to secure consumers a better deal.

Not since 2015 when Ed Miliband pledged to make controlling energy prices a central part of his election manifesto have household energy bills been so politicised. The former Labour leader’s preferred solution at that time was to introduce a price cap on energy bills – a measure which he argued would have cut annual bills by £120 a year. Theresa May’s response to the latest surge in energy prices has been more cautious, but mounting media pressure and the statement from Greg Clark that the Government has a “duty to act” have fed speculation that a change is in the pipeline.

How might the Government tackle recent price hikes? One possibility could be the Government opting to follow the advice of the House of Lords Economic Affairs Committee, which has blamed high prices on support for renewables, and called for an overhaul of the UK’s decarbonisation policies. The Committee’s latest report, published at the end of February, calls on the Government to prioritise energy security and “vary” (i.e. slow) the pace of greenhouse gas emissions reductions.

The Spring Budget provided little in the way of clarity over the future of green levies – aside from confirming that the LCF will be scrapped. However there is an awareness in Whitehall that renewables only make up 8-10% of consumer energy bill – meaning that an overhaul of the Government’s decarbonisation strategy would barely cover the recent rises, but would nonetheless have a bruising effect on investor confidence in the sector – something Greg Clark is keen to avoid. The Minister will hope that focusing energies across improved switching rates, and measures to help alleviate fuel poverty (alongside a warm Spring), will help the Government weather the PR storm.

Will the Government then opt for a Miliband-esque price cap?  A two-year inquiry by the Competition and Markets Authority into the market, which concluded last year, stopped short of such a measure, instead proposing a price cap on pre-payment meters used by poorer households – which Ofgem is set to implement. Market intervention nevertheless remains on the agenda, with Ofgem Chief Executive Dermot Nolan telling the BEIS Select Committee last week that “there is a desire for a policy shift on this”. Whether this materialises into concrete Government action will become clear in due course.

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