Government announces plans to sever the link between renewables, nuclear and gas prices in new Energy Prices Bill.
The Bill enshrines the support measures announced over the last few months into law, including the Energy Price Guarantee for domestic consumers and Energy Bill Relief Scheme for businesses and non-domestic properties.
Additionally, it sets out concreate plans to decouple the cost of low-carbon electricity from that of gas prices through a new temporary Cost-Plus Revenue Limit in England and Wales. This will reduce the impact of the unprecedented wholesale prices on consumers and the taxpayer, the government said.
The precise mechanics of the limit are still subject to consultation – which will be launched shortly – but it will set a revenue limit that curbs the amount generators can make.
“Businesses and consumers across the UK should pay a fair price for energy. With prices spiralling as a result of Putin’s abhorrent invasion of Ukraine, the Government is taking swift and decisive action,” said Business and Energy Secretary, Jacob Rees-Mogg.
“We have been working with low-carbon generators to find a solution that will ensure consumers are not paying significantly more for electricity generated from renewables and nuclear.”
The Government has worked with industry on the detail of the proposal, which is set to come into force from the start of 2023.
By ensuring consumers pay a fair price for low carbon energy there is the potential to save billions of pounds for British billpayers, it noted, while allowing generators to cover their costs and receive appropriate revenues.
Talk turned to the potential of decoupling wholesale gas and power prices earlier in the year as the impact of the Russian invasion of Ukraine on the energy market became increasingly severe.
In June, then Prime Minister Boris Johnson called the system “ludicrous” in an interview with the BBC, and in July Ofgem announced it was eyeing a range of reforms to help accelerate the green energy transition in Britain, including decoupling the wholesale gas and power prices.
Now chancellor Kwasi Kwarteng also stated that consumer bills still being set by marginal gas prices is a “problem that needs to be addressed,” when speaking at the Aurora Spring Forum in July in his role as business and energy secretary.
Reacting to the Energy Prices Bill, RenewableUK’s CEO Dan McGrail said: “We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK. A price cap acting as a 100% windfall tax on renewables’ revenue above a certain level, while excess oil and gas profits are taxed at 25%, risks skewing investment towards the fossil fuels that have caused this energy crisis.
“This decade we need to attract £175bn of investment in secure, domestic wind power and we can already see the investor turmoil that the EU’s proposed price cap is causing in the European market. Industry will continue work with Government on policies to help cut consumer bills and safeguard investment. As such, to limit the negative impacts, it is essential that a cap is set at a level that doesn’t make the UK less attractive to investors than the EU, is technology neutral and has a clear sunset clause in place.
Energy Prices Bill will cover key support measures
The Energy Prices Bill enshrines in law the Energy Price Guarantee, which came into effect at the beginning of October. It is designed to limit the jump in domestic energy bills – which had been estimated to increase to as much as £6,500 – to £2,500 a year for a typical household by capping the electricity and gas units at 34.0p/kWh and 10.3p/kWh respectively, inclusive of VAT for standard variable tariffs.
Other support measures to be enshrined in law through the new Bill include the Energy Bill Relief Scheme, which aimed to half the predicted MWh price for electricity and gas for businesses this winter, to £211/MWh and £75/MWh respectively.
The Alternative Fuel Payment – a scheme that offers a one-off payment of £100 to households not connected to mains gas – is also included, as is the Energy Bills Support Scheme Alternative Fund, which is designed to provide £400 to households that could miss out on the Energy Bills Support Scheme, as they do not have a domestic electricity contract.
Beyond these, the Bill will cover the Northern Ireland Energy Bills Support Scheme – which will look to provide equitable £400 of support to households in Northern Ireland this winter.
The Bill includes provision to ensure heat networks pass on the benefits of the Energy Bill Relief Scheme to consumers as well as the appointment of an Alternative Dispute Resolution body, which will handle complaints from those on heat networks if they are not receiving appropriate support.
It is also intended to ensure that the support set out in the Energy Price Guarantee, Energy Bill Support Scheme, or Energy Bill Relief Scheme are received by the end user, in case were intermediaries procure energy on their behalf.
Finally, the Bill will include legislating to allow the government to consider running voluntary Contracts for Difference auctions. These would take place in 2023, and offer contracts to generators that would provide them with longer-term revenue certainty, as well as helping to safeguard consumers.
These so called Pot Zero Contracts for Difference were originally pitched by the UK Energy Research Centre, and as a concept have gained broad support from the renewables sector, with the likes of RenewableUK, Energy UK and Solar Energy UK throwing their weight behind it.
“Industry has been proactive in proposing new fixed price contracts to cut costs and provide long-term, low-cost power for consumers,” added McGrail.
“We welcome the inclusion of this proposal in the Bill, and it is vital that the scheme is developed rapidly so that industry can plan for new contracts and consumers can be confident that they are getting maximum benefit from cheap renewables.”
“Our actions will mean that energy bills for the typical household will be half what they would have been this winter,” said Chancellor of the Exchequer, Kwasi Kwarteng.
“We are protecting people, holding down inflation and preventing Putin’s energy price hike from causing long term harm to our economy by supporting businesses.”