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on Jan 10, 18 • posted by rhoggett •

Submission: BEIS Call for Evidence on the Helm Review

Submission by the Energy Policy Group (EPG) of the University of Exeter to the BEIS Call for Evidence on the Helm Review.

Catherine Mitchell, Helen Poulter, Matthew Lockwood, Bridget Woodman, Rachel Bray, Richard Lowes, Jess Britton and Richard Hoggett.

January 2018

Summary

The table below sets out the issues that the EPG agrees with in the Helm Review, and the issues we do not agree with. On some issues, we semi-agree with Helm. In these cases, we tend to agree with the problem but not with his solution.

ISSUE	DO NOT AGREE WITH HELM	AGREE WITH HELM
Definition/focus of cost of energy review	Bills not unit prices are what matters – Helm does not spend enough time on energy efficiency. We argue that a domestic energy efficiency programme should be the priority focus for Government if they wish to reduce domestic customer bills. Energy efficiency across the economy would also keep costs down via reduced infrastructure costs etc
Whole system	Energy is a whole system. Helm does say that the energy system is changing fundamentally but his solutions do not fundamentally alter the energy system in terms of markets and institutions. Whilst we recognise his ToR was set up to think linearly in terms of electricity generation; T and D; and suppliers, we do think he could have argued that such a view is distorting GB energy economics and system value, and hence costs to customers.
Political economy of policy	On the one hand he does appear to recognise that political economy matters within the energy system – as we also argue. However, Helm mainly blames lobbyists for subsidies and the complexity of energy policies; R and D problems for renewables; Ofgem and the regulatory mechanism. We do not necessarily agree with his arguments but his overarching solution of a system with ever more sophisticated competition, is something we certainly disagree with. We argue it is necessary to confront the political economy inherent in trying to transform a highly capitalised industry and to put in place a policy making process which is legitimate and transparent and which tries to address those political economy issues
Competition and Delegation	IGov argues that we need to move to a governance framework where there is more legitimate decision-making and a new balance between regulation and markets. This then enables more direction via regulation and less reliance on markets. Ironically, the IGov framework is, in some ways, more market based than that put forward by Helm.
Market design and market power	We disagree with Helm’s analysis of the wholesale market and solutions: ie essentially the wholesale market continuing as is but in a diminished importance, alongside a capacity market and a RSO which may have competitive tenders. We argue a new market design is needed (a 2 market structure – a pool at national, wholesale level with effectively priority access for variable renewables via a must take wholesale market combined with local balancing and coordinating markets)	Semi-agree on market power – hence IGov argument for market monitor, local markets, new market design
Renewable energy and R&D	We do not agree with his arguments about renewables, and innovation.	Semi-agree with issues around ‘subsidy for everything’ hence our argument for new governance framework to get rid of need for subsidy in many situations. However, Helm’s solution is much too complicated and anyway seems to continue with subsidies
Innovation	We disagree with one of GB’s underlying principles that somehow research projects are always better with industrial or industry partners. Whilst often positive, our experience can also be that those partners are less keen on real investigative work and more supportive of outcomes which fit short term, political realities; their self interest or the status quo. This is undermining of our definition of innovation.	Semi-agree with issues about a very complicated innovation picture, and we agree it should be streamlined. However, our worry is not with renewables per se, although generally useful to have more money.
Equivalent Firm Power and Legacy costs	The arguments for a move from FITs and CfDs to Equivalent Firm Power (EFP) to counteract subsidies and legacy costs – is much too complicated. ‘Firmness’ is a system function – and should be delivered via distribution service providers (DSPs, see below); the national independent and integrated system operator and markets. An appropriate market design makes a separate legacy cost mechanism redundant.
Uniform carbon price	We do not agree with the argument that getting economy-wide uniform carbon prices is fundamentally important from an analysis point of view – although we think that having a carbon price is one dimension of a successful energy policy. However, we think it is probably politically impossible to implement effectively, but anyway does not help investment
Default service / price caps	We do not agree with a relative price cap – if we have to have a default tariff then they should be absolute, temporary and include a rising block tariff function	Semi-agree about default tariffs – we understand it is a political issue which has arisen because of the lack of a market monitor, and because of the overly lax GB regulation. However, whilst Ofgem could have done more, this is primarily the responsibility of the Government. Having got to the situation we are in, we are supportive of either a temporary default tariff or one-off levy ([1]). In principle, we do not like price caps. Most US States have a ‘default’ tariff – and GB should learn from them.
Capacity market	We do not agree with the need for a capacity market[2]. We think the ability to tender for particular capabilities – not necessarily capacity – should be a function resting with the SO via targeted, tendering and via the DSPs via targeted tendering or markets. It makes no sense to argue for an RSO and to have a capacity market. This point links to our arguments for integrated alterations to market design, network charging and tariffs.
The role of Ofgem	Unlike Helm, we continue to see Ofgem as an important institution with an important function. We absolutely do not agree that somehow ‘RSOs’ and the ‘NSO’ will need less oversight or regulation. On the contrary, we think GB history has shown that privatised and ‘competitive’ functions need legitimate, transparent and clear regulation.	We semi-agree that the role of Ofgem needs to change: we argue that it should be returned to being an economic regulator.
NSO		We support a state owned independent and integrated system operator, which is wholly separated from National Grid Group. Helm calls this a national system operator (NSO).
RSO	We may disagree with the RSO concept if Helm envisages that they are too big a scale for local coordination. A regional system operator which either does not balance or coordinate energy and the system together at the local level or balances at a higher level would not add sufficient benefits of granularity of value for markets or services, nor particularly improved coordination.	Semi –agree with regional system operator but, importantly, our agreement depends on what scale Helm considers a RSO operates at. We think the important point is that there is coordination and balancing market, effectively under and at, the current grid supply points. Different balancing and coordinating areas will obviously link.
System and energy interaction	Helm argues that there is a need to separate out the wires from the system operator. We do not necessarily agree with this at the distribution level. There are substantial differences in operation and regulation of DNOs compared to the TSO; including the greater link between energy and system services; the ability to develop markets and tenders for both energy and services; for linking electricity with heat and mobility; and for linking network operation to fulfil government goals
DNO transfer to RSO – or not	Helm is unclear whether he sees the DSO arm of the DNO transferring to being a RSO or whether the RSO is a new entity. We see value in the DNO transferring to being a DSP (see below) because of public service obligation issues.
RIIO	Most importantly – and not mentioned by Helm – we argue there needs to be a much greater proportion of network company revenues related to performance on delivering outputs and complementing public policy goals.	We agree that RIIO2 needs restructuring ; we think price control length should be shortened and aligned in time with easier rules for opening up reviews and alterations to business plans.