Out-Law News 1 min. read

Power projects ‘vital to curbing cost of energy in the UK’

An acceleration in the development of new energy infrastructure in the UK can help curb rises in the cost of energy to businesses and households in future, an expert has said.

Energy projects specialist Melanie Grimmitt of Pinsent Masons was commenting after the UK’s energy regulator Ofgem announced details of the rise in the energy price cap that will be effective from 1 April 2022.

The energy price cap is a regulatory mechanism used to control the amount by which energy providers in the UK can raise their retail prices. It is a lever that can be adjusted by Ofgem to account for external factors that affect the wholesale cost of energy that providers have little or no control over.

Ofgem has endorsed an energy price cap rise of 54% to account for a record increase in global gas prices. Approximately 22 million customers will be impacted by the increase.

“Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place,” Ofgem said. “Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect. This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.”

According to Ofgem, the rise in gas prices has resulted in 29 energy companies exiting the market or being put in special administration in the last year.

Melanie Grimmitt of Pinsent Masons said: “The need to enhance our domestic supply and security of energy generation in the UK has never been greater. On average it takes five years for energy projects to go through the project development stage, but with the right regulatory changes this can be significantly sped up. If the government wants more control over energy markets and avoid such drastic price spikes in the future, they need to prioritise the important energy projects currently sitting in its infrastructure pipeline.”

The UK government is in the process of updating the national policy statements for energy infrastructure. It published a series of draft new statements last autumn that each address different types of energy infrastructure. The consultation on the proposed new statements closed on 29 November 2021. The documents, when finalised, will guide decision-makers on the application of government policy when determining applications for development consent for nationally significant energy infrastructure under the Planning Act 2008 regime.

The UK government recently committed £100 million of public funds to the further development of the Sizewell C nuclear project ahead of its expected final investment decision for the project.

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