Professor Dieter Helm has admitted he was “amazed” about the lack of debate over how big a proportion of policy costs contributed to the recent energy price cap hike.
Giving evidence to the House of Lords economic affairs committee on Tuesday (12 February), the author of the government’s recently commissioned cost of energy review commented on last week’s Ofgem announcement that the cap on default tariffs will rise by £117 to £1,254 in April.
Of this increase, £14 is accounted for by environmental and social policy costs, such as renewable energy subsidies.
Helm said: “In the recent price increase, I was amazed how little attention was paid to how much bills were going up in this round because of extra legacy costs.
“Costs of energy ought to be falling but we are getting the price of energy going up in significant measure because of the legacy costs of earlier vintages of this technology.”
“The idea that you should increase prices when costs are falling is a very odd thing to do: those legacy costs should be socialised,” he said, repeating the call in his review for renewable energy projects procured under older and more expensive contracts to be bundled up into a legacy “bank”.
Helm also expressed disquiet at the prospect of Chinese state owned company CGN being given a big role in the UK’s civil nuclear programme, saying it was “odd” that it had been allowed to take a minority stake in EDF’s Hinkley project for the sake of a reduction in the Treasury’s debt
“One would not want to bring China into the core of your nuclear industry,” he said, adding that it is “very hard” to have a clear separation between the civil and military sides of the industry.
The Oxford University professor of energy policy said that he is puzzled why the UK government is gearing up to deploy one of its new aircraft carriers to protect sea lanes off the coast of China while being prepared to allow one of the country’s companies into the “heart” of its nuclear industry.
“We don’t have an interest in China being a global nuclear power.”
Helm also told the peers that the rollout of small modular reactors would only stack up financially if enough could be deployed to achieve manufacturing and supply chain economies of scale.
“If you don’t think you’ve got the demand, we won’t get the bulk supply economies and then the economics won’t stack up.”
Earlier when being cross examined by the committee, Nuclear Industries Association chief executive Tom Greatrex defended CGN’s participation in the UK’s nuclear programme.
He said the Chinese company’s proposed reactor is currently going through the generic design assessment process which should address concerns about security, adding that CGN has given assurances that it does not intend to operate its proposed plant at Bradwell.
“If the interest is to disrupt electricity supply, you could do that already through Chinese companies,” Greatrex said, referring to how the south east of England’s UK Power Networks is owned by a Chinese investor.
Instead, he told the peers that CGN’s interest is proving that their reactor technology meets a high regulatory standard, which can then be a calling card for other markets.
Arguing the continued need for nuclear power as baseload generation, Greatrex said the UK’s storage capacity is still relatively limited and can be depleted “pretty quickly” if demand on the grid rises like during last summer’s heatwave when wind generation dropped sharply.
He said: “It wouldn’t have been much use if we faced a situation like we had in June last year.”