Consumers and businesses 'paying too much for energy'

UK businesses and consumers are paying too much for their energy - and more than necessary to help the environment - an independent report has concluded.

Prof Dieter Helm, from Oxford University, was asked by the government to examine how to reduce energy costs while achieving climate change targets.

He concluded that energy-users should have benefited more from falling costs and technical efficiencies.

And he recommended a new default tariff to replace current variable tariffs.

That new tariff would effectively cap the profits made by energy companies, although prices themselves would not be controlled.

It comes two weeks after the government published a draft bill to cap charges for 12 million customers on standard variable tariffs (SVTs).

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'Limited benefits'

Since 2014, Prof Helm said the price of oil, gas and coal had fallen significantly, contrary to government forecasting.

The price of renewables had also come down, thanks to technical improvements in things like battery power.

"New technologies should mean lower, not higher, costs and much greater scope for energy efficiency," he said in the report.

"Margins should be falling as competition should be increasing. Yet in this period, households and industry have seen limited benefits from these cost reductions. Prices have gone up, not down, for many customers."

The main reason for that was green energy taxes, brought in to pay for renewable forms of generation, which he said made up about 20% of household bills.

Prof Helm also recommended:

The legacy cost of green energy surcharges - such as the Renewables Obligation - should be shown separately on customer bills
The cost of the energy itself would then be lower
Industrial customers should be exempt from paying such charges
A new body should be set up to oversee the National Grid and regional distribution companies, so reducing the role of Ofgem
Carbon prices - and carbon taxes - should be harmonised across the country

'Can do better'

"Not to implement these recommendations is likely to perpetuate the crisis mentality of the industry, and these crises are likely to get worse, challenging the security of supply, undermining the transition to electric transport, and weakening the delivery of the carbon budgets," the professor said.

"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."

The government responded to the report by saying it was already planning to reduce energy costs, including an end to "rip-off" tariffs.

It was also committed to cutting carbon emissions, while driving economic growth.

It will now seek the views of industry, businesses and consumer groups.