IoD: Business leaders propose alternative to energy price caps

Rather than fixing energy bills, the Institute of Directors today said that the next Government should instead force energy companies to create a new transparent default tariff that shows customers how much of their money goes on wholesale energy, transmission and other fixed costs, and how much on the company’s unregulated profit margin.

In the latest of a series of reports the business group is producing before the General Election, the IoD called for new measures to turbo-charge competition in the energy market. Currently, customers face a choice between a bewildering range of different tariffs, fixing prices for a certain period for example, or Standard Variable Tariffs, which have been criticised for not falling when wholesale energy costs fall.

If Ofgem was tasked with overseeing the creation of a new default tariff, consumers would be able to judge different companies on an equal, transparent footing.

Also in the report, the IoD called on the next Government to:

  • Deliver cheaper sustainable nuclear energy beyond Hinckley Point C

The government should organise large auctions when looking for nuclear suppliers, and so encourage a UK-based nuclear supply chain that comes with scale. Money will also be saved with the designation of a long-term Geological Disposal Facility for nuclear waste.

  • Develop shale resources

Oil and gas will still have to do the heavy lifting for decades and the UK should look to make the most of potentially significant shale resources rather than rely on increasing imports.

  • Increase use of auctions for renewable tariffs

With prices falling for renewables, locking in fixed subsidies for years to come through feed-in tariffs is very expensive – moving to auctions will adjust to this new reality.

  • Review the Smart Meters programme

With incompatible meters, deadlines missed and costs mushrooming, the Smart Meters rollout continues to be plagued by problems. The next government must pause and review the rollout to assess where savings could be made.

Dan Lewis, Senior Infrastructure Adviser at the Institute of Directors, said:

“Energy bills have become the latest political football, with both the Conservative and Labour reaching for interventionist solutions. There is clearly a problem, with standard variable tariffs not falling as wholesale prices fell between 2014-16. But cap or freezes don’t help competition in the long-term, and we really shouldn’t trust politicians to set the price and predict the market response. Something does need to be done, however, so we would support giving Ofgem responsibility for creating a truly transparent default tariff, which enables customers to see exactly how one company’s offering compares against the others.

“The next government will also face several other energy challenges in the next parliament, not least how to cost-effectively build more nuclear power plants, make best use of our shale resources, and encourage more efficient renewable energy. These need to be tackled head-on. Another pressing issue is the failing smart meters programme, which risks wasting consumers’ money. The whole programme must be reviewed urgently following the election.”

Go to Press Release