UK Energy Secretary Ed Davey yesterday unveiled details of the government’s long-awaited Energy Bill, which promises to radically overhaul the country’s electricity market.
The bill appoints National Grid as the body charged with delivering the electricity market reform (EMR), which will introduce two new market mechanisms.
Low-carbon generation will be supported through a feed-in tariff with ‘Contracts for Difference’ (CfDs), which will give investors certainty by stabilising returns at a fixed or guaranteed level known as a ‘strike price’.
Renewable energy developments would likely receive CfDs lasting for 15 years, while carbon capture and storage (CCS) projects could see 10 year contracts.
The mechanism also provides a means of clawing back money for consumers from energy generators if the market price overtakes the strike price.
Meanwhile, a capacity market will be established to ensure that there is sufficient reliable capacity to meet demand.
The two new mechanisms will be supported by an Emissions Performance Standard (EPS), which will prevent the construction of new coal plants that emit more than 450g/kWh, and a carbon floor price with an initial value of £16/tCO2 in 2013.
“Leaving the electricity market as it is would not be in the national interest. If we don’t secure investment in our energy infrastructure, we could see the lights going out, consumers hit by spiralling energy prices and dangerous climate change,” warned Davey in his statement.
The reforms, say the government, will provide “transparency, longevity and certainty” for investors to attract the £110 billion needed to move the UK towards low-carbon generation.
“By reforming the market, we can ensure security of supply for the long-term, reduce the volatility of energy bills by reducing our reliance on imported gas and oil, and meet our climate change goals by largely decarbonising the power sector during the 2030s,” said Davey.
The Energy Bill will encourage a “balanced portfolio” of renewables, new nuclear and CCS, although Davey has been at pains to argue that the measures do not mean subsidies for nuclear power.
But critics, including renewable energy and green groups, warn that CfDs, which replace Renewable Obligation Certificates (ROCs), is too complex to attract investors and not transparent for consumers.
The government’s position that nuclear power is not subsidised by the legislation is also being contested.
“The government needs to stop obsessing over a way to make the sums for nuclear power add up, stop our homes leaking heat and switch the country from dirty gas to clean British energy from wind, sun and water to help hard-pressed households with their bills,” says Friends of the Earth energy campaigner Paul Steedman.
Without clear guidance on the level of ‘strike prices’, the renewables, nuclear and CCS industries are still in the dark about potential returns on investment.
“After 18 months of dithering, this Bill doesn’t even set out a clear purpose, when it should make a simple commitment to decarbonising our electricity supply by 2030,” says Steedman. “All [it] contains is a desperate attempt to prop up the dying nuclear industry and a way of letting in dirty gas by the back door.”
Even energy giant E.ON that welcomed the bill said more clarity was still needed in a number of areas to ensure that the legislation is effective and provides the best value for customers.
“The publication of the draft bill is an important step forward,” commented chief executive of E.ON UK Tony Cocker. “However, the continued uncertainty surrounding the nature of the counterparty needs to be resolved so that we have a framework which provides a robust basis for investment and brings value to our customers.”
The government expects the bill to be introduced to Parliament later this year and achieve Royal Assent in 2013, with the first low-carbon projects supported by the measures outlined in the legislation in 2014.
