‘Dysfunctional’ energy market to be examined by Lords committee

An investigation into the UK's energy market has been launched by the House of Lords Economic Affairs Committee.

It will examine whether the “present mix of policy interventions and subsidies” – enacted in pursuit of the ‘energy trilemma’ – has resulted in market failures.

Energy is becoming less affordable as more renewables subsidies are loaded onto consumers’ bills, whilst at the same time security of supply is being “seriously threatened” by a “lack of investment in baseload capacity”, the committee said. The state of affairs suggests “a dysfunctional energy market or a conflict of government policies”.

The committee will examine what measures might be required to correct these failures. It will seek answers to a number of questions, including:

• What are the key economic challenges for the energy market which the government must address over the next decade?
• Has the market and the government responded effectively to changes in external circumstances, such as significant shifts in technology and prices?
• What are the emerging technologies which could materially change the energy market over the next decade and beyond?
• Are returns for private investment in the sector adequate or excessive? How should the government attract sufficient investment?
• What preparations could be made to cope with the risk of a shortfall in energy supply? What would be the cost to the economy of the breakdown of the existing system?
• What alternate ways of pricing energy should be considered to reduce the burden of high energy bills, in particular on less well-off consumers?

Committee chairman Lord Hollick said: “The core question for the committee is are there failures in the energy market and what measures are needed in the future to correct them?

“The risk of widespread power cuts is low. The question is the price that taxpayers and consumers are going to have to pay to ensure that risk remains low. The energy market involves an extraordinarily complicated mix of policy interventions and subsidies. Every investment in electricity generating supply is effectively determined by the government.

“This inquiry will seek to investigate whether current policy is delivering the best deal for energy users and whether it is striking the correct balance between private and public sector involvement.”

The deadline for the submission of evidence is 30 September.