Prime Minister Andy Burnham could cut annual household electricity bills by almost £190 through wholesale market reform and moving policy levies into general taxation, according to analysis commissioned by Octopus Energy.
The supplier is calling on the new government to reverse the previous administration’s decision to reject changes to Britain’s electricity market.
Independent analysis by FTI estimates wholesale reform could save a typical household up to £114 each year. Transferring levies from electricity bills to general taxation could remove a further £75 with higher earners paying more through the tax system.
Octopus said the levy changes could be introduced almost immediately while wider market reform could be completed by 2029.
Without reform the company warned household bills could rise by another £100 before the end of the decade.
Businesses and industrial energy users could save an additional £6 billion annually under the proposed market structure. Total savings could reach £83 billion by 2050.
Britain currently operates a national wholesale electricity market which frequently allows expensive gas generation to determine prices, even when cheaper renewable power is available.
Octopus argues the system lacks local price signals which means generators and energy assets can receive incentives to operate in ways that increase costs.
Wind farms can be paid to stop producing when local networks cannot carry their electricity. Gas plants elsewhere are then paid to increase output to keep the system balanced.
Batteries may also discharge when they should be absorbing excess renewable power while interconnectors can import electricity when Britain has surplus generation available for export.
Payments to switch off wind farms and replace their output with generation elsewhere added £1.5 billion to energy bills last year according to the company. The annual cost is forecast to rise to as much as £10 billion by 2030 if the market remains unchanged.
A redesigned wholesale market would use stronger local signals to encourage electricity generation and consumption in places where it creates the most value.
Octopus said this would improve the use of wind farms, batteries, interconnectors and flexible demand while reducing the need for expensive network reinforcement.
The analysis estimates a more efficient market could avoid £30 billion of grid upgrade costs over the 21 years to 2050.
Octopus calculates another £20 billion could be saved by unlocking smart grid flexibility which would allow households and businesses to shift electricity use away from the most expensive periods.
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