Flawed energy system 'to add £359m to consumer bills'

Tim Yeo, the committee’s chairman has written to Matt Hancock, the energy minister, urging a rethink of rules for the so-called capacity market, a system designed to ensure Britain has enough power supplies to meet demand.

The energy committee backs such “demand-side response” measures, arguing they offer a “cheaper and greener alternative to building new generating capacity”.

But it says a series of problems with current eligibility rules for the capacity market “severely limit” the potential for demand-side response to compete. For example, demand-side schemes that take part in the capacity market for 2018 can not also take part in schemes to provide similar measures over the next two winters.

As a result, the system “could encourage the construction of expensive new power stations which are not actually required”, Mr Yeo warns.

Analysis by consultancy NERA suggests that reforming the rules to allow more demand-side measures could enable as much as 5.5 gigawatts of capacity to be met that way, against only 2.5GW assumed by National Grid.

This could reduce the costs of the market - which will be paid for through levies on consumer energy bills - by as much as £359m a year, it estimates.

more