UK cuts energy price cap, targets more oil, gas

The UK government will fix the energy retail price cap at £2,500/yr ($2,870/yr) for a 'typical' home for two years and will seek to accelerate domestic supply by launching a new North Sea oil and gas licensing round and lifting a moratorium on hydraulic fracturing (fracking), prime minister Liz Truss said today.

She set a target for the UK to be a net energy exporter by 2040, and said new energy minister Jacob Rees-Mogg will set out a plan to achieve this.

The energy price cap will apply from 1 October, superseding one of £3,549/yr set by energy regulator Ofgem on 26 August. Businesses, charities and public sector bodies will receive equivalent support for six months and there will be a separate fund to support households that use heating oil and heating networks, Truss said.

Emergency legislation will be brought forward to ensure the policy is delivered and finance minister Kwasi Kwarteng will set out the costs "later this month," Truss said. There will be a temporary suspension of so-called green levies on bills, she said.

But Truss did not sway from her position on a windfall tax on producers, having consistently emphasised her opposition to them in recent weeks. A windfall tax "would undermine the national interest," she said.

"There will be a cost to this intervention," Truss said, but in the longer term, energy supply must be increased.

New licensing round, fracking moratorium lifted

Truss expects the new offshore licensing round to lead to more than 100 new licenses. A moratorium on shale gas extraction, or fracking, will end "where there is local support for it." No details were given on how this support would be assessed, but this is in line with her pledges during the Conservative party leadership contest.

Rees-Mogg is more firmly supportive of fracking, but backing within Truss' party has been lacklustre, including from new finance minister Kwarteng, who was previously energy minister. The process would be too slow and output too low to offer much relief to tight supply and high prices, former energy and clean growth minister Greg Hands said in March.

New North Sea licences may not mean new supply comes on stream in the near future. Industry body Offshore Energies UK (OEUK) noted that if all projects currently awaiting approval from the UK government go ahead, they would add around 10pc extra to current oil and gas supply, but production from those developments would not peak until 2027. Opposition Labour party leader Keir Starmer said today that "doubling down on fossil fuels is a ludicrous answer to a fossil fuel crisis".

Truss also pledged to "speed up our deployment of all clean and renewable technologies," including hydrogen, solar, wind and carbon capture and storage, and will establish an energy supply task force to negotiate long-term contracts with domestic and international suppliers. This will be led by Madelaine McTernan, who led the UK's vaccines response during the Covid-19 pandemic.

Truss promised a review of energy regulation, to form a "new approach that will address supply and affordability for the long term," and one to map out how the UK will reach its legally binding net-zero emissions by 2050 target.

By Georgia Gratton