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Chapter 1: What are the main issues with the UK's energy pricing system?
Energy is really misunderstood.
Costing households and it's costing businesses and it's making the economy uncompetitive.
Completely agree that the electricity price is a problem. I think the next sentence, though, often in the political debate is, and that's because of net zero or because of the renewables. Which is rubbish. Which is rubbish. Investors, as you know, Robert, aren't fans of change and change to markets and 25-year infrastructure projects.
Investor certainty to get the stuff built or consumer benefit pre-2030.
Clean energy is a very attractive...
destination why is it so apparently politically unpopular and what does any government do about it we're delighted to say that this year the rest is money is being powered by octopus energy so greg is back with us greg i've got another question for you so in terms of energy companies are we just back to the big six you know what we've only got like six or so major supermarket chains no one worries about that because they invest ferociously in competition
You've got differentiation. You know, we thought the market was stable, then Aldi and Lidl turned up. Competition is not about reinventing the souk with dozens of identikit companies. It's about companies having different approaches to looking after customers and competing ferociously on that. Energy could well be going that direction.
Cheers, Greg, and thank you for powering this episode of The Rest Is Money.
Hello and welcome to The Rest Is Money with me, Robert Best, and Steph's away doing exciting stuff, but I'm delighted to be joined by Emma Pinchbeck, who is the Chief Executive of the Government's Climate Change Committee.
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Chapter 2: How does the transition to green energy impact households?
in low-cost energy, seemingly so politically unpopular. A lot to chew over with Emma Pinchbeck, and here's our conversation. Emma, very good to see you. I suppose what I wanted to start by asking you is a very big question, which is, you know, at a time when we've now seen these two major conflicts...
Putin's illegal invasion of Ukraine, Trump's war against Iran, which have led to these energy shocks. There are quite a lot of politicians, and not just at the fringes, who say this is not the moment when we should be spending money on climate transition. I mean, I know the arguments why that may not be wholly credible, but take us through your thinking.
Okay, that is a big question. Both 2022, which I worked on really closely with the energy sector because I was leading the energy trade body at the time and responsible for the response to that crisis. And then now have been caused by a spike in the price of fossil fuels. And underneath that, a global market that the UK has little influence on, but is in the receipt of the...
unpredictability of that market and of the prices that come out of it. And so I think at a common sense level Most people would understand the idea that reducing your exposure to that volatility means getting off the fuel that's causing it or separating yourself somehow from that global market.
But if it's costing them money on their bills now, they're going to say, I don't want to pay that now.
Two things. Firstly, the renewables that we've got in the system now are already helping a bit to insulate us from some of that shock because in having renewables on the system, they're displacing the fossil fuels that you would otherwise be buying in.
And we know that from the last crisis, having renewables on the system, having insulated homes, that in itself helped reduce some of the exposure to the gas price shock in particular. It's a slightly different shock this time, of course, being oil, not gas. But the principle holds.
And then if you think about how you fund the transition, one of the things the Climate Change Committee has said is we would like to see those levies move into taxation or elsewhere. And the reason for that is...
Underneath this, cheap electricity coming from renewables, coming from clean sources of power, flowing through to electric technologies in people's homes, will already be saving some households money. But if electricity were cheap, it would be saving many, many more households money, particularly for things like driving costs.
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Chapter 3: What challenges does the UK face in achieving energy self-sufficiency?
People, again, should probably need to understand that some of our energy, and, you know, this is True of wind, I think solar. It's certainly true of the new nuclear that's being built. They're on fixed price contracts. What happens is the price that they receive will be fixed. And if they receive more than that because of marginal pricing, they have to pay that back into the system, don't they?
And if actually the price plummets below what they get... then we pay them back so they get their fixed price. So that is a way of shielding. But there are also all these older power stations that are on, that basically just get the market price.
So there are a few... As you say, the older scheme. So we've done the logic of it is it kind of from a security supply point of view across the whole system allows you to procure the stuff you need most cost effectively overall. Do you believe that?
I think. Because that is the point. Do you think that that is the most cost effective system?
I think market design... There are like 10 people who are really nerdy about market design in the UK. I have occasionally been one of them. In this job, I should say, the Climate Change Committee doesn't work on policy design. And the reason is it's because in every... And this is to a point, good or bad.
In every decision you make about the energy market and its structures and policies, there's normally a winner and a loser. And that takes us quite into political territory that we can't be in.
Although I would argue... That if you could demonstrate that renewables were rewarding people directly in their pocket, support for the kind of things you think as the Climate Change Committee need to take place in the UK to get us to net zero would be much greater.
So we'd agree with that bit in that our recommendation was move the levees so you get the cheap electricity signal through early and pre the 2030s when we're expecting it to come through the markets as older renewables projects roll off the contracts you're talking about on CFDs and elsewhere and the merit order starts to change.
In this period where the merit order, this is the thing where gas is still setting the price in that stack, that will change over time. When I was spending a lot of time looking at market design, most of the alternatives have drawbacks as well.
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