The structure of Britain’s energy market is in the spotlight after a report published by University College London showed industry players in the country are paying on average a third more for electricity than many counterparts in Europe.
According to the report, continental peers have reaped the benefits of better interconnections, more cross-border trading and long-term supply contracts.
The report’s authors propose several policy changes to support “competitive” prices, including making it easier to invest in low-cost renewable energy sources such as onshore wind farms, which have been excluded from subsidies. The UK should also ensure it leaves the EU in a way that it retains “unrestricted access to the internal energy market”, they say.
“The concern [in government] about electricity prices is real,” said Michael Grubb, professor of energy and climate change at UCL and one of the authors of the report told the Financial Times.
The political focus in recent months has been on the level of household energy bills, with the government proposing a price cap.
Consumer bills, however, are still on average lower than those in France or Germany.
Yet industrial electricity prices remain uncompetitive. Heavy energy users such as steel, chemicals, cement and ceramics companies have long complained of high power prices. Analysis by the industry lobby group UK Steel shows that higher electricity prices mean an extra £43m in annual costs for the sector.
Celsa, which operates a steel mill in Cardiff, says its electricity costs there are roughly 50 per cent higher than for a comparable plant in France or Germany. “Energy for a number of years has been the most significant internal cost we have,” said Chris Hagg, UK commercial director. “Because we’re spending this money on electricity, investment can’t be at the levels we would wish it to be.”
According to the report, average industrial electricity prices in the UK in 2016 were 35 per cent above the EU average. The comparison does not take into account the compensation some UK businesses received through low-carbon policy measures and fluctuations depending on whether the bills were measured in sterling or euros.
Industry on the continent has benefited from more extensive grid interconnections, which gave companies access to lower cost sources. The development of renewable sources of energy has been better co-ordinated and helped bring down wholesale prices in Germany, in particular. A more activist approach has also helped bring down electricity prices for key industries in France, Germany and Italy.
To report urges reduction in disparity of prices. One option, said Prof Grubb, would be to review current policy towards onshore renewables, notably onshore wind. The government, he added, should “harness the energy revolution rather than treat it as a problem and a cost. Actually, renewable costs have tumbled”. The government should also focus on its network connections with the continent. Electricity trade through interconnection helps UK wholesale prices to converge with continental prices, the report said. Companies should also be encouraged to strike contracts to secure cheap generation from the continent through interconnectors.
Just last week, analysis compiled by Heat Traders showed that the UK’s household energy bills were 39 per cent lower than Europe’s highest, Sweden. Heat Traders ‘s extensive historical research looked at the coldest temperatures ever recorded in history in each country and when it occurred and found that the coldest country isn’t necessarily lumbered with the highest heating bill. You can find the link here.