Closer link between energy production and consumption urged

Adjusting subsidies through the CfD scheme to better reflect that additional renewable capacity is not equally valuable in all parts of the country could help lower energy costs, according to a new report.

The Institute for Fiscal Studies and LSE report said that while the government has ruled out zonal pricing, there are other options for promoting a closer link between the costs of electricity production and consumption.

The report also said making the default household electricity tariff time-varying and introducing measures such as higher subsidies for electric heat pumps where the cost of producing electricity is low are other options.

The report also examines how taxes and levies on electricity bills currently contribute to higher electricity prices. It concludes that relying less on the decarbonisation of electricity for the rest of this decade than is currently planned would reduce the cost of achieving overall decarbonisation.

Bobbie Upton, Research Economist at the Institute for Fiscal Studies and a co-author of the report, said: “Looking ahead, high electricity prices look set to be with us for many years to come. Improving the efficiency of the electricity market would have a long-run pay-off.”