Outdated energy rules ‘add billions to cost of reaching net zero’

The cost of hitting net zero will be billions of pounds higher than it needs to be without reforms to green subsidies and the way in which transmission costs are levied, a leading think tank has warned.
Households and businesses are facing steeper energy bills because of “clunky old rules” about how power is generated, regulated, traded, stored and transmitted, according to a report by the Centre for Policy Studies.
Developers bidding in the annual contracts-for-difference auctions should be more transparent about the costs associated with renewable power, such as the need to build extra storage. Reflecting this in the price the successful generators are paid would help to ensure that the cheapest technologies are selected, the report suggests.
It recommends allowing “local discounting” for customers who agree to pylons or onshore wind turbines being built near them and introducing “local pricing” for transmission costs.
Prices should be lower for energy retailers that move electricity through the grid when it has plenty of spare capacity, which would reward suppliers that transmit their energy to be stored close to customers at the cheapest times or via the cheapest routes.
So-called constraint costs, where the grid is overloaded and is unable to cope, already add between £500 million and £1.5 billion to customers’ bills each year, according to the Electricity System Operator.
The government also should “rewire” UK energy markets away from using the short-termgas price as their benchmark as renewables provide more of the country’s energy, the report says. That would include amending the price cap, which dictates household energy bills.
The report, which puts forward 20 recommendations to achieve net zero in a more cost-effective way, was written by John Penrose, a former Conservative MP and chairman of the party’s policy forum.
• How the energy price cap can be made fit for purpose
The previous government launched a consultation this year on reforming the electricity market, including changes that would provide motivation for renewable generators to store power rather than discharging straight on to the market and then being paid to switch off.
Labour has set a target of decarbonising the electricity system by the end of the decade, alongside stretching goals to double onshore wind power, to triple solar generation and to quadruple offshore wind capacity.
“There is plenty of debate over cuts to the winter fuel payment, but not enough of a conversation about how to lower bills across the board,” Penrose said. Without reform, net zero would cost billions of pounds more than it needed to, handing “huge bills to British households and crippling UK manufacturing at the same time. But if we decarbonise in the right way, our energy can be both greener and cheaper.”
A spokesman for the Department for Energy Security and Net Zero said: “In an unstable world, the only way to guarantee our energy security and protect consumers from future energy price shocks is by moving towards homegrown power. We are reviewing responses to the consultation on reforming electricity markets, ensuring we focus on protecting billpayers.”