Policy tinkering causing energy price rises, says think tank

Energy and climate policies which fail to put affordability at the heart of policy making have caused the £120 rise in energy bills over the past five years according to Policy Exchange.

Research by the think tank says government is as much to blame for the rise in prices as energy companies, arguing policymakers fail to strike the right balance between affordability for consumers and decarbonising the economy.

Policy Exchange says wholesale costs have not contributed to the increase during the period 2009 to 2014, and are now falling, while forecasts show domestic energy prices could increase by up to 18 percent by 2020 in real terms due to policy costs.

It warns that the Department for Energy and Climate Change (Decc) has already run out of money, and suggests that the spending cap controlled by the Levy Control Framework to 2020 will be breached in the absence of changes to policies.

The think tank is calling for a strengthened role for consumer advocates such as Citizens Advice and a revamp to the Green Deal to maximise energy efficiency and reduce bills.

It also wants the government to retain the system of carbon budgets but avoid setting additional sector specific targets, and scrap the 2020 Renewable Energy Target and resist calls for a 2030 power sector decarbonisation target.

However member of the advisory board of the energy and climate intelligence unit Lord Turner has warned that Policy Exchange is “in danger of taking too short term an approach”.

Turner said: “Investment cycles in energy are typically many decades in length, making forward-looking policy crucial. Building a robust clean energy system now will insulate people against volatile natural gas prices now and in the future.

“The cost of clean energy has already been increased by policy tinkering – so it is somewhat ironic that a report purporting to advocate lower prices should be proposing yet more tinkering.”