UK Energy Minister Amber Rudd has supplied further information in reply to queries raised with her at the first meeting with MPs on the Westminster Energy Committee, which is chaired by the SNP’s Angus MacNeil – the MP for the Western Isles.
The Committee raised the point of gas market and consumer prices and the comparison to other European countries.
As I stated in the discussion, this government is committed to keeping energy bills as low as possible for consumers and in fact gas prices in the UK are extremely competitive.
Average gas prices for UK households in 2014 were the second lowest across the EU15, and 17% below the EU 15 median (comparison for medium consumers including taxes).
For electricity, the average price for UK households in 2014 was 2% below the EU15 median level (comparison for medium consumers including taxes).
This is a strong position but I intend to continue to focus on treating energy affordability as a top priority.
The Committee also asked about the methodology used for calculating prices and billscompared to that which Eurostat use. The figures that I gave to the Committee are in fact based on Eurostat figures.
My department does not separately estimate European prices or comparisons. If the Committee would like to look at this in more detail, the latest available published comparisons to the EU can be found in DECC’s Quarterly Energy Prices publication from June 2015.
Nuclear in the Capacity Market
The Committee asked for information on why we allow the current nuclear fleet to bid into the Capacity Market given they may continue to be operational without capacity payments.
The Capacity Market is a market-wide, technology neutral scheme, drawing on a full range of sources of production to deliver the best possible value for money in ensuring our security of supply.
Alternative designs have been considered, for example, where plants deemed likely to remain operational without payments would be excluded (a ‘strategic reserve’ design). However, other designs which are not technology neutral would have perverse effects, such as lowering the wholesale power price and causing losses for existing generation remaining in the market, in turn, this could cause capacity to close.
Our analysis suggests that the Capacity Market design offered the least potential for large power plant to exercise market power making it cheaper in the long run, and more likely to bring forward new build.
Rural networks and connection
The Committee raised the important point concerning the process of connecting to the electricity distribution network, both in terms of cost and the time it takes to connect.
As noted during the Committee session, there has been significant investment in our electricity networks, approximately £16 billion since 2010 and much more in the pipeline. In order to help improve the process of connection, Ofgem – the independent regulator in charge of networks – has already taken a number of new steps to help drive down connection times and improve customer service.
These are in addition to the existing statutory requirements that specify time limits for when network operators must provide connection quotes and compensatory payments where these or agreed timeframes for connection are missed.
Earlier this year, Ofgem through its Quicker and Efficient Connections consultation, set out options for enabling more anticipatory investment, which could help speed up connection times by creating capacity earlier and sought views on other ways of improving the connection process. Ofgem is considering the responses to the consultation and will set out in its plans for taking this forward.
Connection customers can opt to use an independent connection provider (ICPs) instead of the local distribution network operator. Encouragingly, use of ICPs has grown over recent years.
Ofgem has recently carried out a review of the connections market and has required network operators to take a number of steps to facilitate greater competition.
My department will continue to work with Ofgem to look at whether more can be done to help drive improvements, whilst also being mindful of transferring costs to consumers through their energy bills, Stephen Lovegrove, Permanent Secretary for my department, has agreed to raise this issue with the regulator when they next meet in the Autumn.
Contract for Difference Auctions and post 2020 Levy Control Framework
The Committee asked for clarity on a second round of CFD allocation and the prospect of an early announcement for Levy Control Framework after 2021.
As stated in the session, discussions on both of these points are ongoing but I would like to reassure the Committee that I will respond in more detail when there are further developments.
In the announcements made on the 22 July l have committed to set out totals for the LCF beyond 2020, providing a basis for electricity investment into the next decade. In addition, it is my intention to set out plans in the autumn in respect of future CFD allocation rounds.