Interventions in the energy market by successive governments have pushed up prices, but not secured supplies, peers found.
A House of Lords committee said the interventions have led to an opaque, complicated and uncompetitive market.
The peers blame “poorly designed government interventions in pursuit of decarbonisation” that they say have put pressure on energy supply and bills.
The government said its priority was ensuring secure, affordable energy.
In recent years policy has been focused on the so-called “energy trilema” of delivering security of supply at an affordable cost to consumers while meeting our climate change goals.
However, the report states energy security should be the priority and that low-carbon policies have contributed to higher bills for households and businesses, leading some energy-intensive firms to relocate abroad.
“It’s a very high price that is being paid,” says Lord Hollick, who chairs the House of Lords Economic Affairs Committee.
He points out that green levies, which account for around 10% of energy bills, are set to soar: “Those renewable costs are estimated to go up to nearly 25% by the mid 2020s.”
The committee says decarbonisation should be achieved at the lowest cost to consumers with targets managed flexibly.
“The government should vary the pace of emissions reductions rather than adhere to a linear approach”, the report says.
It suggests that this may mean waiting for the development of technology that can reduce emissions.
“We are not in any way saying we should take the foot off renewables,” says Lord Hollick.
“In fact we’re saying we should put more effort into the RD for renewables and deploy more renewables and make the UK at the leading edge of innovation for renewables and other means of managing demand like storage.”
The report is particularly scathing of the recent agreement between the government and EDF for a new nuclear plant at Hinkley Point in Somerset.
That guaranteed EDF will be paid £92.50 per megawatt hour, inflation linked for 35 years, for the energy the plant will provide.
“We thought that it was extraordinarily expensive,” says Lord Hollick. “Where is this technology up and running? Where is it proven? It’s either over budget or over time – or both.”
The Lords also call for the government to publish a contingency plan in case Hinkley Point C is delayed.
Responding to the report, EDF said that the Somerset project had been through a long and thorough process of scrutiny and examination.
“Hinkley Point C provides value for money and is competitive with all other future energy choices. It is already delivering significant benefits to the economy by creating jobs, boosting skills and strengthening the UK’s industrial capacity,” the company said.
Some believe the cost of new nuclear plants could be reduced if the government took advantage of its low borrowing rates and took stakes in new nuclear projects.
While the committee took evidence on the issue, most of which supported taking equity stakes, it did not reach a conclusion on the issue.
But Lord Hollick went further, telling the BBC: “If there is proven technologies around, including nuclear, the government should consider doing that … and lower the cost.
“The opportunity for the government to use its borrowing power to reduce the costs of new generation, assuming they are backing proven technology, would be a sensible part of an industrial strategy.”
The report says that the government should reduce and remove its interventions in the energy market.
It calls for generating capacity to be secured by a technology-neutral auction that would ensure that consumers pay the lowest prices for low-carbon electricity.
An Energy Commission should also be established to provide greater scrutiny of energy policy decisions and a National Energy Research Centre created to look at new ways of producing cheap, clean energy.
The Department for Business, Energy and Industrial Strategy said that keeping the lights on for families and businesses was non-negotiable.
It added: “The purpose of government subsidies is to kickstart new clean energy technologies, not to support them indefinitely. When costs have fallen dramatically we have scaled back support in order to protect household bills.”