An independent review into the cost of energy has found that we are paying too much for our gas and electric – and says that prices should be falling.

The Government-commissioned report published yesterday puts forward proposals on how to reduce costs in the UK's energy network, while ensuring we meet climate change targets.

The two main findings include:

  • The cost of energy is significantly higher than it needs to be to meet the Government's environmental targets.
  • Energy policy, regulation and the structure of the market are not fit for the purpose of the emerging green and low-carbon energy market.

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What was recommended?

The report from Professor Dieter Helm CBE makes a wide range of recommendations across energy generation, transmission, distribution and supply – including the issue of expensive standard variable tariffs and the recently proposed price cap on these tariffs.

It suggests replacing standard tariffs with a transparent 'default tariff', based on an index of wholesale prices, supplier costs, levies and taxes and a published profit margin.

Capping the margin would help limit the price of standard variable tariffs – in line with draft energy price cap legislation published earlier this month.

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'Households and industry have seen limited benefits'

According to the report, since late 2014 the price of oil, gas and coal has fallen significantly, and the price of renewable energy has also been falling fast.

Network costs (eg, for distribution and supply) and new technologies such as battery storage and other types of storage should mean lower, not higher, costs and greater energy efficiency. Plus, with more and more energy suppliers entering the market, provider profit margins should be falling.

Yet in this period, the report notes, "households and industry have seen limited benefits from these cost reductions. Prices have gone up, not down, for many customers."

'We can, and should, do much better'

The report concludes that not going ahead with its recommendations "will continue the unnecessary high costs of the British energy system, and as a result perpetuate fuel poverty, weaken industrial competitiveness and undermine public support for decarbonisation [ie, moving to green and low carbon energy].

"We can, and should, do much better, and open up a period of falling prices as households and industry benefit from the great technological opportunities over the coming decades."

What happens next?

The Government will "shortly be seeking the views of industry, businesses, academics and consumer groups on Professor Helm's review".

Energy Secretary Greg Clark said: "I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings."

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