Stay informed with free updates
Simply log in to UK Energy myFT Digest – delivered straight to your inbox.
Britain’s energy bills are not expected to fall significantly over the decade, partly because of the cost of building the electricity grid to support the transition to renewables, the chairman of the energy regulator has warned.
Mark McAllister told the Financial Times that Ofgem expected bills to be “relatively flat over the medium term”, adding that it supported more “targeted support” for households struggling with energy bills.
Speaking ahead of last week’s general election, McAllister, who took up his role at Ofgem in November, said: “As we roll out more and more renewables, we also increase the price, amortized over many years. network as well.
“If we look at wholesale price forecasts and then build future network costs on top of that, I think in our view we’re seeing something that’s relatively flat in the medium term.”
Energy costs are a key issue in the campaign ahead of the July 4 election, with both the governing Conservatives and opposition Labor vowing to try to cut bills.
Last week, Ofgem announced a 7 per cent drop in the price cap governing most UK household energy bills from July due to falling wholesale costs, meaning a typical household would pay £1,568 a year.
The cap will fall more than 60 percent from its peak in January 2023, at the height of the energy crisis caused by a spike in wholesale energy costs, fueling inflation and a cost-of-living crisis.
However, it remains above pre-crisis levels typically below £1,100, partly due to the running and development costs of electricity and gas cables and pipes, which will account for £363 or 25 per cent of the July 2024 cap, compared to £254. in the summer of 2021.
The costs are subject to inflation, but will also take into account the investment needed to develop cables and masts to cope with the increase in wind and solar farms, heat pumps and electric cars due to the shift away from fossil fuels.
National Grid recently said it would invest £31 billion in electricity networks over the next five years. Chief executive John Pettigrew noted that the “single digit pound” impact on network bill costs would be offset by the wholesale cost benefits of building renewables.
McAllister joins Ofgem at a crucial time as the UK works towards its legally binding target of net zero carbon emissions by 2050. The regulator has a mandate to support the government in meeting this target, in addition to its main role of consumer protection.
Ofgem needs to enable huge investment in overhauling the energy system, with McAllister highlighting the benefits of developing “energy that is produced locally and over which we have full control” in the form of renewables.
“Not getting to net zero is not in the consumer’s interest,” McAllister added. “Consumers’ interests are not just about prices. It’s prices, energy security, net zero. All three are needed to protect the population of this country.”
McAllister, who worked in the oil and gas industry, joins Ofgem as it tries to rebuild its reputation after criticism that it was too slow to act after 30 suppliers collapsed during the energy crisis.
He said he thought Ofgem’s measures to tighten supervision struck the right balance. But he added that the suppliers’ customer service was “not as good as it really should be” and the regulator needed to “refine our enforcement schedule”.
He said the price cap introduced in 2019, which imposes a cap on the unit rate of energy in default rates, “has done some good things in the past” but may not be the best mechanism for the future energy system.
“Part of the solution must be to expand targeted support for consumers,” he added.
McAllister, the former head of the Nuclear Regulatory Authority, also warned of an “end-of-decade challenge” for electricity supplies due to the closure of aging nuclear power plants and delays in construction of the Hinkley Point C power station in Somerset. French state utility EDF.
“We need to build new renewables and get enough additional capacity into the system in terms of storage. So yes, there is a challenge for us,” he said.
But he added: “We kept the lights on even during the energy crisis; we’ll keep the lights on through it.”