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Why the UK Energy Market Requires More Public and Transparent Scrutiny – The Conservative Alternative Policy Pathway Challenged
This is the first in a series of blogs in which Tranzparent will examine how household energy costs could evolve between today and 2050 under different future energy pathways.
We will use the Tranzparent proprietary whole energy system model to examine the implications of these pathways for household costs, the wider energy system and the assumptions that underpin them.
Our approach is deliberately transparent. We will publish the assumptions used in our analysis so that they can be examined, challenged and, where appropriate, improved.
There is considerable complexity in forecasting the UK's future energy system. We believe a more transparent approach, supported by constructive challenge and peer review across the industry, can contribute to a more informed debate about the choices available to the UK.
We welcome scrutiny of our own assumptions and analysis. Our objective is not to promote a particular pathway, but to improve the quality and transparency of the debate.
We will also hold an online webinar on Thursday 15th October. To book a place, please email HouseholdEnergyBills@tranzparent.energy.
Throughout this series we will use £ per week as the household energy-cost metric, with the annual equivalent shown alongside it.
The Conservative Alternative Policy Pathway challenged
In this first blog, we examine the Alternative Policy Pathway proposed by the Conservative Party and, in particular, the reported household saving of £10.38 per week (£540 a year) in 2050 against the Business as Usual (BAU) case.¹
Our analysis suggests that something may be amiss with the way this headline saving relates to the system cost figures published in the Alternative Policy Pathway report.
This is not a criticism of the political objectives of the proposal. It is a question about whether the published analysis provides sufficient information for the wider public, industry and policymakers to understand how the headline household saving has been derived.
Greater transparency around the underlying calculations would allow the analysis to be independently examined and would make constructive challenge much easier.
The reported £10.38 per week saving warrants closer examination
The Alternative Policy Pathway states that the reported saving represents the difference between household energy bills under the BAU and Alternative Policy Pathway scenarios in 2050.
However, the report does not directly state the level of the BAU household bill from which the £10.38 per week (£540 a year) saving is calculated.
The report does publish a system cost index² showing how the relative cost of the BAU and Alternative Policy Pathway systems changes between 2027 and 2050.
According to the published index:
- In 2027, the BAU system cost index is 100.
- By 2050, the BAU index has fallen to 86.9.
- By 2050, the Alternative Policy Pathway index has fallen to 69.1.
This indicates that the system is expected to become less costly over time in both scenarios, with the Alternative Policy Pathway showing a lower system cost index.
The question is how those system-cost indices translate into the reported household saving.
What does the published index imply?
We do not have the actual 2027 price-cap figure used in the Alternative Policy Pathway analysis.
For the purposes of this illustrative calculation, Tranzparent estimates the 2027 electricity bill price cap at approximately £17.25 per week (£897 a year) before VAT.³
Applying the published BAU index of 86.9 gives:
£17.25 × 86.9% = £14.99 per week
On this illustrative basis, the implied BAU household bill in 2050 would be approximately £14.99 per week (£779 a year).
If the reported Alternative Policy Pathway saving of £10.38 per week (£540 a year) is then applied to that figure, the implied Alternative Policy Pathway household bill would be:
£14.99 − £10.38 = £4.61 per week (£240 a year)
At this point, we think something is amiss.
A household energy bill of approximately £4.61 per week in 2050 would require further explanation, particularly given the scale of the energy services households would still need to purchase.
The calculation is not intended to establish that the Alternative Policy Pathway analysis is incorrect. Rather, it highlights a material question that cannot readily be resolved from the published information.
Could the £10.38 saving represent the system-cost reduction instead?
There is another possible interpretation.
The Alternative Policy Pathway system cost index falls from 86.9 for BAU to 69.1 for the Alternative Policy Pathway in 2050.
That represents approximately a 20% reduction in the indexed system cost.
If the reported £10.38 per week (£540 a year) saving represents this 20% reduction, the implied BAU household cost would be approximately:
£10.38 ÷ 20% = £51.90 per week (£2,699 a year)
The corresponding Alternative Policy Pathway cost would then be approximately:
£51.90 − £10.38 = £41.52 per week (£2,159 a year)
This produces a very different picture of household costs.
It also illustrates the central issue: without the underlying BAU household bill being explicitly published, it is difficult to reconcile the headline £10.38 per week saving with the published system-cost index.
There may be assumptions, definitions or methodological steps within the underlying analysis that explain the difference. We do not have sufficient information to establish that from the published report alone.
That is precisely why we believe greater transparency would be valuable. The Tranzparent app shows each of the assets used in the energy system being simulated and the operating and capital costs, together with the assumptions that support them alongside a household bill broken down in Ofgem price cap terms.
Why publishing the underlying household bill matters
A headline figure such as £10.38 per week (£540 a year) is highly material to households and therefore deserves to be readily reproducible.
Publishing the BAU household bill alongside the Alternative Policy Pathway bill would make the calculation straightforward:
BAU household cost – Alternative Policy Pathway household cost = reported saving
It would also allow independent analysts to understand how the system-cost index translates into the household costs presented in the report.
This is particularly important when the numbers involved are large enough to have a material bearing on the public debate about future energy policy.
A case for more transparent energy-system analysis
This example illustrates why Tranzparent has developed a whole energy system model.
Energy policy does not operate through the electricity market alone. Changes to one part of the energy system can have consequences elsewhere, including heating, transport, networks, generation and fuel use.
Our approach is therefore to examine the system as a whole and to publish the assumptions behind our analysis.
We do not claim that our modelling is beyond challenge. Quite the opposite.
We want the assumptions, methodology and results to be examined by others, including industry participants, policymakers and independent experts.
A stronger debate is more likely when the underlying numbers can be independently reproduced and challenged.
What we will examine next
In the next blog, we will examine what we describe as the “missing money” issue that can arise when future energy pathways are assessed through an electricity-only analysis.
In particular, we will look at what happens to household costs when changes in electricity demand and generation are considered alongside the other energy services that households continue to require.
Our aim throughout this series is straightforward:
to make the numbers more transparent, expose the assumptions, and encourage constructive challenge.
Contact Tranzparent
If you would like more information about our analysis, or would like to see a demonstration of the two pathways, Alternative Policy Pathway and BAU, please contact:
HouseholdEnergyBills@tranzparent.energy
or visit:
About Tranzparent
Tranzparent Limited is an independent whole energy system modelling and consultancy business.
This analysis was not commissioned by another organisation and has been carried out by Tranzparent Limited.
Tranzparent uses £ per week for household-level figures, with the annual equivalent provided alongside them.
Households ultimately pay for only part of the wider energy system; businesses, industry and other consumers pay the remainder.
For the purposes of assessing household costs, Tranzparent considers the services that consumers require regardless of the energy source used. Alongside traditional household energy costs, this can include the costs associated with vehicles, shipping and aviation services.
Technical notes
The Tranzparent whole energy system model:
- operates as a half-hourly simulation model;
- is available online;
- uses assumptions drawn from public sources; and
- includes fuel, fixed, variable and capital costs on a total cost of ownership basis.
Notes
¹ The Energy Minister's foreword to the Onward report Firm Foundations states a household saving of £10.38 per week (£540 a year) in 2050.
² Powering Britain: A comparison of policy pathways to 2050, page 33.
³ Tranzparent estimate of the 2027 Ofgem price cap before VAT: £17.25 per week (£897 a year).
