Kwarteng signals wholesale market reform on the cards

Kwasi Kwarteng has hinted that a wide-ranging reform of the wholesale power market is on the cards, after telling MPs that the price of electricity cannot “forever” be linked to that of gas.

Giving evidence this to the House of Commons Business, Energy and Industrial Strategy (BEIS) select committee, the department’s secretary of state was quizzed on whether he supported a mooted extension of the recently announced energy profits levy to electricity generation.

Kwarteng sidestepped the question by replying that any extension of the levy is a matter for chancellor of the exchequer and pointed the committee to the commitment in the government’s recently published energy security strategy to reform the wholesale market.

He said: “We are keen in BEIS to look at the question of price mechanisms in the energy market. It cannot be case that the electricity prices are forever linked directly to gas prices when gas is only a portion of energy mix.”

In an interview on Radio 4’s Today programme this weekend, prime minister Boris Johnson also pointed to concerns about the impact of marginal gas prices on the wider wholesale electricity market.

Kwarteng also signalled that the existing budget for the Public Sector Decarbonisation Scheme, aimed at decarbonising buildings like hospitals and schools, will be raided to fund an expansion of the government’s energy efficiency programme.

Asked to comment on a recent report that a taxpayer-backed extension of the Energy Company Obligation (Eco) scheme could be financed from budgets for existing programmes, Kwarteng said: “Some money will have to be reallocated. If we are going to have a high spending, ambitious energy efficiency roll-out, we can’t simply print more money.

“In terms of a new major energy efficiency scheme, I can’t simply go beyond the (BEIS department’s) comprehensive spending review envelope and print more money so there has to be some reallocation of existing budgets to drive that.”

At the same hearing, Kwarteng contradicted statement by the BEIS department’s permanent secretary Sarah Munby that bill payers would be expected to shoulder any costs resulting from the Special Administration Review process for selling off Bulb Energy.

He said that while the process was “unprecedented”, any presumption that consumers will have to pay extra for Bulb’s failure is “not right”.

Kwarteng also rebutted a suggestion that recent gas price hikes have undermined the commercial case for ‘blue’ hydrogen, which relies on the fuel for its production.

He said the “cornerstone” of the government’s strategy remains a “twin-track approach” to develop a market for blue hydrogen, while the efficiency improves of the electrolysers used for making the fuel’s lower carbon green version

“Even now with very high gas prices, blue hydrogen is cheaper than electrolysis produced hydrogen,” the secretary of state claimed.