Recommendation 6

We are very concerned about the Department’s lack of urgency in addressing the energy market failures that are leading to high energy bills for consumers. During 2022–23, the UK experienced record-high wholesale gas prices. Since 2019, Ofgem has set a price cap that energy suppliers can charge households. The level of the cap increased by 80% in winter 2022–23 to £3,549 compared to summer 2022– 23, mainly because of increasing wholesale prices. This is because the UK electricity market operates on a marginal pricing system, which means that electricity generator companies are paid a fixed price per unit of electricity, which is determined by the cost of the most expensive generating technology needed at the time. This is usually gas-fired power stations that are more expensive than other sources of energy, such as renewables like wind power. The government plans to reform the electricity 8 Energy bills support market through the Review of Electricity Market Arrangements (REMA), which could result in arrangements that enable consumers to benefit more from the cheaper running costs of renewables. The Department issued its public consultation for the REMA in July 2022 stating that it expects to implement changes from mid- 2020’s but has not yet made available any further details of the timeframe for the review. The previous reform, the Electricity Market Reform, took three years. In the meantime, if gas prices increase again, consumers and taxpayers will be subject to significant costs again. Recommendation 6: The Department should set out, as part of its Treasury Minute response, the timeline for its review, and how the REMA will ensure that the electricity sector has more resilience against future unexpected events, such as high gas prices. Energy bills support 9 1 The design and performance of the schemes