Green levies in the firing line

Could a review of how EU legislation affects energy policy lead to an opt-out of targets and a cut in energy bills? asks Ellen Bennett.

It’s actually quite scary,” says one lobbyist. “It’s descended into panic, no-one’s quite sure what’s going on, and the actual issues around transparency and competition are being lost.”
That is a fair summary of the latest act in the farce that energy policy has become this autumn. When David Cameron announced a review of green levies on energy bills and a competition “audit” of the sector during prime minister’s questions on Wednesday last week, he took even his coalition partner and deputy prime minister Nick Clegg by surprise. With policy apparently being scribbled on the back of a fag packet, what do the latest interventions mean in practice and what is the government up to?
It’s clear that Cameron’s announcement was a response to Ed Miliband’s proposed energy price freeze and concomitant reform of the market. No doubt former prime minister John Major piling in on Tuesday last week was an additional spur to action. Major’s unscripted call for a windfall tax on energy companies, and his comment that people shouldn’t have to choose between “heating and eating” caused red faces at Number 10.
Over the past few weeks, Tory fixer Oliver Letwin has been knocking on energy companies’ doors asking how the government can help cut bills. Rolling back green levies is the obvious answer, and much to the dismay of the Lib Dems, the government has listened. First in the firing line is Eco, with the carbon floor price and Renewables Obligation Certificates also under review. The extent to which any of these levies can be scaled back will be dependent on infighting between the coalition partners and Number 10 and the Treasury over the next few weeks.
The second plank of Cameron’s response is a “competition audit” of the energy market. This is pure politics. The prospect of a Competition Commission inquiry into the market has been batted around for years, and now even the energy companies are calling for it – as EDF chief executive Vincent de Rivaz said this week, “we have nothing to hide”. But a Competition Commission inquiry takes some two years, and is fully independent of government. In the current febrile atmosphere of energy politics, this wouldn’t do at all.
Instead, Cameron has launched a “competition audit” – a new model whose closest analogy is the independent review of the banking sector a couple of years ago. In that instance, the government wanted answers within a year, and wanted to retain some control over the outcome. The same is true here. The audit, which will be carried out by the OFT and its replacement, the Competition and Markets Authority, and Ofgem, will take a year, reporting back about six months before the 2015 election – just in time for the Conservatives to adopt its proposals in their manifesto.
How it will work and what the outputs will be are questions yet to be answered. With the Energy Bill working its way through the Lords, there seems little logic in establishing a separate and poorly defined process of market reform – but logic is no longer the guiding force when it comes to energy in Westminster.
Less attention has been paid to Decc’s call for evidence for a “balance of competence review”, essentially asking whether Europe has too much control over UK energy policy. While this review has been on the cards for a while, and is part of Cameron’s wider bid to see off UKIP by taking back ground from Europe, the timing of the call for evidence is interesting. Announcing it last Thursday, energy secretary Ed Davey characterised it as an “important and unique” opportunity for interested parties to have their say on how EU legislation affects energy policy. Of course, this legislation includes the renewables targets that are driving the very green subsidies now under review. It is not too much of a leap of the imagination to see this review leading to an attempted opt-out of the targets and thus a cut in energy bills.
The latest act in this increasingly bizarre drama was unfolding as Utility Week went to press, with the big six up before the Energy and Climate Change Select Committee hearing. Meanwhile, the energy companies merrily continue to hike their bills, the public grows ever more furious, and the essential questions over the future of the energy mix and security of supply remain unanswered.