Source · Select Committees · Public Accounts Committee
Recommendation 28
28
Deferred
Decoupling electricity and gas prices needs careful reform for long-term consumer benefits.
Conclusion
We asked about whether the vast majority of the additional cost of energy to UK customers was going into increased profits for the energy sector. Energy UK told us that in looking at decoupling electricity and gas, the government should look at ensuring cheaper prices in the long term. Energy UK told us renewable energy companies that have been built under contracts for difference have been paying back in the last 18 months and as a result consumers have seen discounts on bills. It also highlighted the importance of government not rushing through reform to avoid unintended consequences such as high energy bills.72 67 C&AG’s Report, para 7 and Figure 2; Ofgem, What drives wholesale electricity prices in Britain?, 15 July 2016; Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Consultation document, July 2022 68 Qq 121–126 69 Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Consultation document, July 2022; Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Summary of responses to consultation, 7 March 2023 70 C&AG’s Report, Early contracts for renewable electricity, Session 2014–15, HC172, 27 June 2014, Figure 4 71 Q 121 72 Qq 2, 17 Energy bills support 21
Government Response Summary
The government agrees with the committee's observation and plans to publish a second Review of Electricity Market Arrangements (REMA) consultation in Autumn 2023. This programme will consider various options to shield consumers from future price spikes and ensure they benefit from lower cost renewables, with decisions on reforms taking place throughout the programme.
Government Response
Deferred
HM Government
Deferred
6.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2023 6.2 The department aims to publish a second review of electricity market arrangements (REMA) consultation in Autumn 2023 and will take decisions on shorter-term reforms more quickly where it is viable to do so throughout the REMA programme. REMA’s overall timescale will depend on the extent of reform found to be necessary and could range from those that could be taken relatively quickly, to reforms that could take a number of years to implement – depending on the nature and complexity of reform. The aim for the second consultation is to set out a direction of travel, next steps and support a smooth transition to any new arrangements over time. 6.3 The REMA programme will consider a range of potential options to shield consumers from the impacts of potential future commodity price spikes and to ensure they benefit from lower cost renewables, including more transformative options, as well as whether an evolution of the current approach represents the best balance of consumer protection, investor confidence and overall system efficiency. 6.4 The Contracts for Difference (CfD) scheme already insulates consumers against electricity price spikes, as all revenues generated from renewables with CfD contracts above a pre-agreed ‘strike price’ are paid back to consumers. The scheme is driving renewable deployment at scale, and over time will significantly reduce dependence on fossil fuelled power generation, lowering consumer exposure to gas prices.