The Industry and Regulators Committee has said the UK is likely to miss its net zero by 2050 target, as the goal has not been matched by the policies and the clarity over financial incentives needed.
“The government has set ambitious targets for net zero including a carbon-free power system by 2035; however there is no point planning a carbon-free energy future if you haven’t got a clue how you will get there or how it will be paid for,” said chair of the House of Lords Industry and Regulators Committee Lord Hollick.
In a new report, it called for the creation of a Transformation Taskforce within government which could work across departments to set out a clear roadmap for both the development and implementation of energy policies.
This includes acting as a coordinator, as many necessary decisions cut across government departments and therefore cannot be charged to a single regulator. It should monitor the consequences of net zero policy for consumers, taxpayers and the security of the supply of energy.
Beyond this, the report The net zero transformation: delivery, regulation and the consumer called on the government to outline with urgency how net zero will be funded. This includes questions around how to incentivise households to replace gas boilers with heat pumps, and how the 6 million homes where heat pumps may be unsuitable can transition to low carbon heat.
The government must consider a wide range of funding options, which should include reviewing its opposition to the use of government borrowing. Placing the cost of net zero on energy consumers through bills is regressive, the Committee continued, putting a severe burden on consumers in particular given the recent surge in energy prices.
Gas prices have more than quadrupled since the beginning of 2021, leading to energy bills increasing by 54% from April. Recently gas prices have gotten more volatile due to the Russian invasion of Ukraine, with predictions this will contribute to energy bills growing to £3,000 when the winter price cap is set later this year, placing substantial strain on consumers.
The amounts that can be realistically raised from surcharges on energy bills will not be enough to fund the transition continued Lord Hollick.
“Bills are regressive as the poor pay more of their income on energy costs; it is also unfair to the current generation as we are asking current billpayers to cover the huge costs of something that is designed to mainly benefit future generations.
"The government should look again at using greater public borrowing to fund what are huge and long-term infrastructure costs. That would give investors confidence to invest in new technologies and ensure the public aren’t hit immediately with higher bills at a time that many are already struggling with fuel poverty.”
The increasing power prices along with the price cap led to 27 energy suppliers collapsing, as well as Bulb going into special administration in 2021. With prices remaining high in 2022, Together Energy, Whoop Energy and Xcel Power Ltd have shuttered already.
The Industry and Regulators Committee called on the government to review the role of Ofgem. It said the regulator should bring in a more robust supervisory framework to make sure suppliers entering the market are viable, including there being a ‘fit and proper person test’. This would help to avoid repeating the exodus of suppliers from the market seen recently.
Ofgem announced two new short-term measures in February to help stabilise the supplier market. This included making suppliers offer all existing customers the same deals that are available to new customers and paying a Market Stabilisation Charge.
Additionally, Ofgem should have a focus on switching to net zero, and should be reviewed to ensure it is not creating barriers.
The report also highlighted the importance of security of supply alongside tackling climate change. It called on the government to clearly set out the role for nuclear and gas as backups to more weather-dependent intermittent energy sources. Included within this will be facilitating greater exploitation of Britain’s natural gas resources.