The EIUG agrees with the objectives for the future market arrangements that the review sets out but reiterates that they need to have consumers at the heart and consumer will be looking for affordable and/or competitive energy prices.
The EIUG urges Government to prioritise moving away from an electricity wholesale market where fossil fuels set the marginal price. High electricity wholesale prices relative to other countries will make energy intensive industries less able to compete internationally. As the current high gas price are likely to continue for quite some time and the energy bill relief scheme expires for business not classified as vulnerable after six months, it might put energy intensive industries at a structural competitive disadvantage again if gas continues to set the wholesale electricity price most of the times. The EIUG therefore argues to split this issue up from the rest of the options to consider and appraise options on a faster timescale.
The EIUG is sceptical about locational pricing for electricity consumers, especially nodal pricing. Under purist theoretical economic assumptions and if the electricity network had to be built from scratch, then nodal pricing could work. However, nodal prices are unlikely to be the defining variable in investment decisions to locate new demand. Furthermore, a move to nodal pricing is unlikely to incentive demand users to move as investments already made will have created sunk cost and any move in response to nodal pricing is likely to be prohibitively expensive thereby negating its intended effect.
The EIUG also wants to point out that funding low carbon technologies deployment via levies on electricity prices or obligations on electricity suppliers distorts the efficient operation of the electricity market, increases fuel poverty and risks putting energy intensive industries at a significant competitive disadvantage internationally. A better way to support deployment of these technologies is via direct Government financial support. The EIUG would like also to flag up the Secretary of States’ written ministerial statement of 8 September 2022 regarding energy costs, to temporary suspend the green levies. The EIUG argues that these levies should move to direct Government funding on a structural basis.