Recommendations & Conclusions
5 items
5
Recommendation
Fifty-Ninth Report - Decarbonising the …
Rejected
The Department has not yet set out how it expects decarbonising the power sector will impact energy bill payers and taxpayers. While government recognises that initially it will rely heavily on private investment to fund the clean energy transition, the costs to build, maintain and operate the power system are …
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The Department has not yet set out how it expects decarbonising the power sector will impact energy bill payers and taxpayers. While government recognises that initially it will rely heavily on private investment to fund the clean energy transition, the costs to build, maintain and operate the power system are typically passed onto consumer bills. The Climate Change Committee has estimated that future capital expenditure costs will increase running up to 2035 and then decrease along with operating costs, and government has estimated that £280 to £400 billion of public and private investment in new generating capacity will be needed by 2037. However, the Department has not yet assessed what this ultimately means for energy bill and taxpayers. Energy affordability, driven by unprecedented wholesale gas prices, has Decarbonising the power sector 7 been a significant contributor to the current cost-of-living crisis. In the future, how energy is bought and sold will depend on the outcome of the government’s ongoing Review of Electricity Market Arrangements. The Department expects reform of the retail market to result in more scope for suppliers to offer new tariffs that accommodate consumer demand flexibility, so bill payers can opt to reduce their bills by increasing their energy use when demand is lower. Recommendation 5: The Department should publish in the delivery plan due later this year information on when and how the costs of decarbonising the power sector are likely to have an impact on energy bill payers and taxpayers, and update this regularly when new information becomes available that changes the cost profile.
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Government response AI summary
The government rejects the recommendation, stating that future costs are uncertain and that it already publishes information on cost impacts for specific policy interventions in Impact Assessments and monitors energy prices via Quarterly Energy Prices reports.
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HM Treasury
16
Conclusion
Fifty-Ninth Report - Decarbonising the …
Rejected
While government has estimated that £280 to £400 billion of public and private investment in new generating capacity will be needed by 2037, it has not yet assessed when there may be periods of higher spending and how this will be paid for, particularly if consumer bills remain high due …
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While government has estimated that £280 to £400 billion of public and private investment in new generating capacity will be needed by 2037, it has not yet assessed when there may be periods of higher spending and how this will be paid for, particularly if consumer bills remain high due to wholesale prices.51 Since privatisation in the 1980s and 1990s, the power sector has largely relied on private investment for building and renewing infrastructure.52 The cost of building, maintaining and renewing the system therefore tends to fall to consumer energy bills rather than taxation.53 The Climate Change Committee has estimated that future capital expenditure costs will increase to £18 billion a year running up to 2035, and then decrease along with operating costs. It has also estimated that from 2044 onwards, the annual operational cost savings are projected to more than offset the annual additional capital investment required for electricity generation.54
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Government response AI summary
The government rejects the committee's observation, stating its focus on consumer security, affordable bills, and its current approach to policy decisions, cost impacts, and monitoring energy prices.
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HM Treasury
17
Conclusion
Fifty-Ninth Report - Decarbonising the …
Rejected
We questioned the Department as to how it is planning to protect consumers and taxpayers from the cost of decarbonising the power sector, particularly when a challenge of proceeding quickly is that deploying nascent technologies before there is a competitive market for them, requires taxpayer support. The Department told us …
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We questioned the Department as to how it is planning to protect consumers and taxpayers from the cost of decarbonising the power sector, particularly when a challenge of proceeding quickly is that deploying nascent technologies before there is a competitive market for them, requires taxpayer support. The Department told us that it is seeking to achieve its objective at least cost to the consumer, but confirmed that nascent technologies such as CCUS and small nuclear reactors will result in significant cost for both taxpayers and energy bill payers. It added that bill payers are not currently paying anything up-front for renewables, or the nuclear power station under construction at Hinkley.55 However, it confirmed bill payers would, should it go ahead, pay for a new nuclear power station at Sizewell before it is operational, using a form of financing called a regulated asset base that it believes would be cheaper in the long run.56
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Government response AI summary
The government rejects the committee's observation, outlining its focus on consumer security by reducing and affording bills and describing its approach to managing policy interventions, cost impacts, and monitoring energy prices.
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HM Treasury
18
Conclusion
Fifty-Ninth Report - Decarbonising the …
Rejected
Although the Department was unable to tell us when bill payers would see lower bills as a result of investment in zero and low-carbon generating infrastructure, it highlighted recent analysis by Ofgem that renewables funded by contracts for difference are reducing annual household bills by an average of £54.57 However, …
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Although the Department was unable to tell us when bill payers would see lower bills as a result of investment in zero and low-carbon generating infrastructure, it highlighted recent analysis by Ofgem that renewables funded by contracts for difference are reducing annual household bills by an average of £54.57 However, it acknowledged that in the context of recent unprecedented high wholesale gas prices, which are contributing to the increased cost-of-living, the benefit to consumers may seem inconsequential.58 The Department highlighted that, as the electricity system accommodates more projects with contracts for difference, this reduction in bills should increase.59 51 Department for Business, Energy & Industrial Strategy, Net Zero Strategy: Build Back Greener, 19 October 2021; C&AG’s Report, para 2.18 52 C&AG’s Report, para 2.17 53 C&AG’s Report, paras 12, 2.17 54 Q 89; C&AG’s Report, paras 1.15–1.16, Figure 10 55 Qq 87, 90–91 56 Qq 90–92 57 Q 92 58 Qq 93–94 59 Qq 89, 92–94 14 Decarbonising the power sector
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Government response AI summary
The government explicitly disagrees with the committee's (implied) recommendation, stating its focus is on consumer security by bringing down bills. It highlights past support schemes and its long-term strategy, Powering Up Britain, to deliver wholesale electricity prices amongst the cheapest in Europe.
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HM Treasury
19
Conclusion
Fifty-Ninth Report - Decarbonising the …
Rejected
The Department is also currently considering fundamental market reform of how electricity is bought and sold, through which it hopes to reduce costs of electricity to consumers over the long term. The Department expects reform of the retail market to result in more scope for suppliers to offer flexible tariffs, …
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The Department is also currently considering fundamental market reform of how electricity is bought and sold, through which it hopes to reduce costs of electricity to consumers over the long term. The Department expects reform of the retail market to result in more scope for suppliers to offer flexible tariffs, for their customers to benefit from cheaper electricity when demand is lower.60 Reducing electricity demand through energy efficiency and consumer behaviour
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Government response AI summary
The government rejects the committee's observation, stating its focus is on consumer security by reducing and affording bills, and explaining its approach to policy interventions, cost impacts, and monitoring energy prices.
Read full response →
HM Treasury