Skidmore urges faster pace on rebalancing gas and electricity prices

The government should make “significant progress” on rebalancing electricity and gas bills before the latter’s price drops back to pre-energy crisis levels, Chris Skidmore’s review has recommended.

The ex-energy minister’s independent review of net zero delivery outlines a wide-ranging set of recommendations on energy infrastructure and prices.

This includes the government committing to outline a clear approach to rebalancing gas and electricity prices by next April. Then there should be “significant progress” on relative gas and electricity prices by the end of 2024.

According to analysis conducted for the ex-energy minister’s review, a gas price below 150p/therm marks a tipping point beyond which rebalancing of prices would make a difference in giving many more households an incentive to save when installing a heat pump.

The report says recent business, energy and industrial strategy (BEIS) department fossil fuel price assumptions made available to the review show that the price of gas is expected to drop towards 2019 levels by 2024.

The government should use this reversion to a more normal energy market as a trigger to commit to significant progress on gas and electricity price rebalancing by the end of 2023, such as by stripping out environmental and social levies that currently apply to electricity and not gas bills, the review says.

If the gas price remains at a “clearly elevated threshold”, this date could be pushed back to the end of the following year, it adds.

The government should use the Review of Electricity Market Arrangements (REMA) to complete the rebalancing cost.

Analysis conducted for the review shows that keeping the relative price of electricity and gas consistently competitive on a long-term basis will be the “single biggest determinant” of ensuring that the transition to electrified heating brings significant savings to average households.

‘Not credible’ to re-set net-zero pathway

Analysis conducted for the review also shows that the government’s trajectory for decarbonisation, set out in 2021’s Net Zero Strategy, remains “broadly the best way” forward, despite increases in fossil fuel prices over the past year.

This is because the speed with which the main decarbonisation technologies can be rolled out is constrained by supply chains and production rather than costs.

“This, together with uncertainty over future fossil fuel prices, means that it would not be credible to re-set the pathway to a substantially faster one,” says the review.

The same analysis shows that these recent changes have not significantly affected the mixture of technologies required for reaching net zero cost-effectively.

The review also urges the government to develop a long-term cross-sectoral infrastructure strategy by 2025 for adapting and building the distribution of liquid and gaseous fuels, electricity and CO2 networks over the next decade.

In addition, Skidmore’s review says that rolling out the National Grid Electricity System Operator’s Holistic Network Design (HND) exercise is critical to delivering the government’s ambition of up to 50GW from offshore wind by 2030. This will include updating the energy National Planning Statement to recognise critical infrastructure identified by the HND.

Other recommendations for government on energy infrastructure, include:

• Setting up the Future System Operator “as quickly as possible”
• Updating Ofgem’s remit to incorporate the government’s net-zero target
• Working with Ofgem and network companies to facilitate anticipatory investments in grid infrastructure
• Prioritising the delivery of the REMA
• Reform of the local planning system and the National Planning Policy Framework ‘as soon as possible’ to align with the 2050 net zero target
• Introduction of a test for all developments to be net zero compliant

Responding to the review, National Infrastructure Commission chair Sir John Armitt said: “Chris Skidmore’s clarity in his call for accelerated action is as compelling as it is commendable, nailing the argument that inaction now will cost us all in the long run. Given the economic opportunities offered by leading the pack internationally, securing policy and funding stability over the coming years is paramount.

“The report’s specific proposals on the importance of forward looking investments in electricity grid infrastructure and a plan for delivering engineered greenhouse gas removals are two examples of recommendations the Commission has been advocating. Our own work on decarbonising the energy sector, to be published in the next National Infrastructure Assessment later this year, will offer concrete and costed proposals to inform an updated National Infrastructure Strategy that helps deliver the vision set out powerfully in this report.”