Cost of living: Energy boss on ‘mechanism’ to help consumers

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Energy industry leaders have handed the Government a major plan to save bills for households and businesses by £18billion a year, with a relatively “quick” solution. This plan would significantly reduce the electricity bills by separating the link between renewable power and electricity produced from natural gas. Energy UK, an industry trade body, believes that its proposals could slash an estimated £18billion a year from energy bills.

Businesses, in particular, would get a massive boost, set to receive £11billion of that figure.

Meanwhile, households across the country could see their bills slashed by £150–£250 per year.

Business secretary Kwasi Kwarteng has reportedly met members of Energy UK to discuss this master plan and is seriously considering presenting it as an option to the next Prime Minister.

The Tory leadership race is set to end this week, with Foreign Secretary Liz Truss emerging as the front runner, which would likely place Mr Kwarteng, a key backer, in the Chancellor’s role.

Adam Berman, Energy UK’s deputy director, said: “The current energy market doesn’t allow customers to fully benefit from the cheapest form of electricity – domestically produced low-carbon generation.

“This scheme would be a significant first step to decoupling gas from retail electricity prices.

“Removing the link between gas and retail electricity prices will be complex and take time, but this solution provides a quick fix for up to 40 percent of our generation capacity.”

As the price of wholesale gas skyrockets due to Russia’s invasion of Ukraine, offshore wind has become nine times cheaper than natural gas, according to Carbon Brief’s analysis.

They found that in July, the Government had granted a number of contracts to offshore wind farm producers to generate electricity at an average price of £48 per megawatt-hour (MWh).

This is nine times cheaper than the £446/MWh current cost of running gas-fired power stations.

However, the cost of electricity is often set by the cost of natural gas, as it still produces a significant chunk of the electricity mix.

As a result, green energy companies have charged wholesale gas-level prices and profited off record energy prices despite being tipped to be far cheaper than fossil fuels.

Many older nuclear, solar and wind power generators are currently on a type of contract known as renewable obligation (RO) contracts, under which they sell at the current wholesale rate.

Under the new proposals, these firms would be encouraged to sign up to a new type of contract known as contracts for difference (CfDs).

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Under this deal, companies would agree to a set price for electricity over a 15-year period.

If the wholesale electricity costs are lower than the contract price, then the system works as a subsidy, with generators raking in the difference.

However, market prices right now are at record levels, far higher than any contract.

In such situations, the producer pays the Government the difference, and the money is then allocated to energy retailers in the hopes of lowering bills.

For renewable energy owners, such plans mean that while they may sell their electricity at a lower price, these prices are fixed and guaranteed over a number of years.

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