News & Press

Consumers must not be forgotten in electricity market reform plans – says watchdog

Published: 12 July 2011

Consumer Focus recognises the need for reform. Keeping the lights on and tackling climate change is in consumers’ long term interests. However, consumers can’t be expected to write a blank cheque to decarbonise electricity generation. The huge costs of these changes will flow through to electricity bill payers at a time when similar price hikes to fund essential infrastructure in other sectors may also hit consumers.1

If today’s policy is to be the least worse option for consumers it needs to be done in the most cost effective way. The impact on consumer bills must be tackled with greater determination than has been seen to date. In order to deliver value for money and minimise the impact on consumers, Government must ensure that:

  • Consumers on the lowest incomes are protected;
  • The ambition for a step change in energy efficiency is delivered;
  • The energy market becomes more competitive, e.g. by ensuring greater trading in the wholesale energy market and encouraging new entrants. 

To mitigate the impact of these reforms on consumers, it is absolutely critical that programmes such as the Green Deal and Smart Meters can transform consumer behaviour and cut domestic consumption dramatically, if not the burden of investment may become unsustainable for many consumers. 

Commenting on the Government’s Electricity Market Reform White Paper to be published today, Mike O’Connor, Chief Executive of Consumer Focus, said:

‘Keeping the lights on and cutting carbon emissions comes with a huge price tag.  We need to confront these challenges and it is clear that there are no easy options. 

‘The way in which we cut carbon emissions and shift dependence away from imported fossil fuels must be at the lowest cost possible and must go alongside radical programmes to cut energy consumption. That is easy to say, but difficult to achieve. To keep costs down, every consumer and every household will need to cut energy consumption and have the tools and products to help them do so unless they are to face huge bills.  

‘We broadly support the Government’s plan but  there are some important questions that need to be addressed by these programmes.2 We welcome feed in tariffs but the carbon floor price mechanism is an expensive way to encourage low carbon generation.  If Government goes forward with this model, energy efficiency programmes will have to do more to help consumers, and to do it faster. That will mean using a significant part of the revenue to Treasury from a Carbon Floor Price directly for this purpose.3

‘Energy is not the only market in which we as a nation need to invest.  It is essential that consumers’ interests are properly represented in the vital debates to come.’

In relation to the key elements from today’s announcement Mike O’Connor said: 

Feed-in tariffs

‘A cost effective feed-in tariff could help give the certainty industry need to invest in zero carbon generation at a reasonable cost to consumers. The challenge will be making sure that costs are kept in check by the right protections, weights and measures.’

Capacity Payments Mechanism

‘It is vital that this measure does not effectively leave consumers paying twice for fossil-fuel power stations to stand idle. ’

Emissions Performance Standard (EPS)

‘Discouraging new coal-fired power plants that don’t have Carbon Capture and Storage is a sensible move. It is also welcome that the Government has committed to not applying this retrospectively. This will prevent consumers being faced with unnecessary higher costs and mean our energy supply is more secure in the short term.’

Carbon floor price

‘The Government needs to concentrate on value for money. We believe the “carrot” of Feed in Tariffs could deliver more zero carbon energy at a lower cost than the “stick” of a carbon floor price. This top-up tax is intended to create less volatile wholesale pricing but will lead to price hikes for customers. If the Government is committed to the carbon floor price approach it should commit to protecting the most vulnerable consumers from the extra cost and use a significant share of the tax income it reaps to deliver energy efficiency.’

 ENDS

Notes:

  1. There are plans to modernise the national infrastructure for energy, water, rail, communications and airports. Consumer Focus published a pamphlet in March 2011- ‘Regulated industries and the consumer’ – on the need for strong consumer representation and a cross-sectoral approach, during these changes.
     
  2. Please see the following links for more detail on issues surrounding the Green Deal and smart meters.
     
  3. The Australian Government has announced a similar carbon tax with over over half the money raised from the carbon price to be used to assist households. 

For further background please see Consumer Focus’ media briefing and policy response to DECC’s original proposals.

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