Energy review examining household and environmental costs

An independent review looking at ways to reduce energy costs has been launched by the government.

The study will examine how the UK can keep household bills down while also meeting its climate change targets.

Oxford University professor Dieter Helm, who is carrying out the work, said he would "sort out the facts from the myths about the cost of energy".

The launch comes just days after British Gas raised electricity prices by 12.5% for 3m customers.

The study, which is expected to be published in October, will look at the key factors affecting bills - including energy and carbon pricing, efficiency measures and regulation.

It will consider how costs can be reduced at all stages of the energy supply chain, as well as the impact of new technology on the sector.

However, it will not examine whether to introduce a cap on energy bills, which was a pre-election pledge by the Conservatives.

Professor Helm said: "My review will be independent and sort out the facts from the myths about the cost of energy, and make recommendations about how to more effectively achieve the overall objectives."

The government says it is already looking at ways to cut bills and has called upon the energy regulator Ofgem to use its existing powers to reduce prices.

The regulator said it is considering extending a price cap on energy bills to more households on low incomes.

Will Hodson of the Big Deal energy switching group said the review was "kicking the can down the road" and said consumers needed an immediate solution to the rising costs of energy.

He added that households which were constantly switching providers were getting the best deals, but loyal customers were paying significantly higher prices, as they were on a standard variable tariff which fluctuates.

Business and Energy Secretary Greg Clark said: "All homes and businesses rely on an affordable and secure energy supply and the government is upgrading our energy system to make it fit for the future.

"We want to ensure we continue to find the opportunities to keep energy costs as low as possible, while meeting our climate change targets."

Lawrence Slade, chief executive of trade body Energy UK, said he welcomed "greater transparency" over energy cost as the UK moves to a decarbonised energy system.

"Using our energy as smartly as possible is critical so energy efficiency must be a national infrastructure priority," he added.

Consumer group Which? said the review will be "cold comfort" to many households already overpaying on their energy bills.

Alex Neill from Which? said: "Consumers need to see urgent action from the government and regulator to tackle the lack of competition in the market and to ensure they are getting a good deal."

Announcing the rise in electricity prices, British Gas owner Centrica said it was one of the last suppliers to raise its tariff and the move was a result of transmission and distribution costs and the costs of government policy.

But the government said its policy costs "could not explain" the rises.