Industry reacts to Energy Bill

29 November 2012
By Sofia Mitra-Thakur
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The Energy Bill allows ministers to treble investment in low-carbon power generation

The Energy Bill allows ministers to treble investment in low-carbon power generation

Energy Secretary Ed Davey has set out a "once-in-a-generation transformation" of the UK's power sector which ministers hope will keep the lights on, drive growth and jobs and cut emissions.

The long-delayed Energy Bill, formally published this week, allows ministers to treble investment in low-carbon power generation to £7.6 billion by 2020, up from £2.35 billion this year.

But its failure to include a target to slash emissions from the electricity sector by 2030 has led to criticism from environmental groups that the measures do not go far enough to secure the investment in green technology needed in the next two decades.

Concerns have also been raised that the trebling of funding for green power sources such as wind farms this decade, which will be levied on fuel bills, will push up already soaring household energy costs.

Davey insisted that government policies were designed to reduce consumer bills and prevent them being at the mercy of rising global fossil fuel prices. 

Overall, government policies on electricity generation and support for energy efficiency measures would reduce bills, he said.

"The net effect of government policy on energy bills is downward, not upwards," he told MPs in the Commons.

Current analysis from the Department of Energy and Climate Change (DECC) suggests the average household bill will be 7 per cent or £94 lower in 2020 than it would without all the policies the government is pursuing in the sector.

Davey has said the support for low-carbon electricity will add less than £100 a year to bills.

An estimated £110 billion is needed in the next decade to renew the UK's aging electricity infrastructure, with much set to go into low-carbon power sources such as wind farms.

The Energy Bill sets out plans for long-term contracts which will ensure companies are paid a guaranteed price for the electricity they generate from low-carbon sources, to overcome the high capital costs of offshore wind and nuclear reactors.

The Energy Secretary told MPs: "We are now preparing a once-in-a-generation transformation of the energy landscape to bring on massive private sector investment which will boost the economy, create jobs and power Britain towards a prosperous low carbon future."

The Bill will also include measures to ensure consumers are on the lowest tariff that suits their needs, after an intervention by Prime Minister David Cameron which caused surprise and confusion in many quarters.

Other measures set out today include a "capacity mechanism" in which companies will be able to bid for support to provide power sources or reduce demand to ensure the lights stay on even during peak demand.

Although there is no target to decarbonise the power sector by 2030, the Bill does include the power to set a target if it is considered to be needed in 2016.

The government has also published proposals to reduce energy demand, as DECC estimates a 10 per cent reduction in electricity use could save £4 billion by 2030 and reduce carbon emissions equivalent to those of a large city in a year.

Among ideas included in the two-month consultation are financial incentives for firms and individuals that install more efficient equipment, such as better freezers in supermarkets.

Firms could also be paid to commit to permanent reductions in their electricity use, and an obligation on energy firms to help secure efficiencies extended to cover business premises.

Better labelling of products and an awards scheme to highlight firms that use only highly-efficient products are also included in the consultation.

Davey described the reforms to the electricity market as an "economic opportunity".

"It will stimulate supply chains and support jobs in every part of the country, capitalising on our engineering prowess and our natural resources, cementing the UK's place at the forefront of clean energy development," he said.

"In an era of rising global energy prices by shifting to more home-grown sources of power and by becoming more energy efficient, we can cushion our economy and households from the fluctuations of world gas markets."

He added: "We intend to underpin this with reforms to the retail market to simplify tariffs and make sure consumers are able to get the best deal for them."

The Energy Bill has been the subject of political wrangling within the coalition, with Davey voicing support for long-term limits on carbon emissions by the power sector and Chancellor George Osborne backing a second "dash for gas" with support for new gas power plants as a cheap source of electricity and tax relief for unconventional shale gas exploration in the UK.

Calls for a 2030 decarbonisation target have come from a range of businesses and campaign groups, who say it is needed to give investors confidence in the government's commitment to supporting low-carbon power after 2020.

Greenpeace raised concerns the capacity mechanism amounted to a handout for new gas plants.

"There is a gaping hole in the Energy Bill in the shape of a 2030 decarbonisation target," said Greenpeace political director Joss Garman.

"Billions of pounds of investment rest on this target being made law. 

"Without it, there is serious risk of an investment vacuum after 2020, and of jobs and money being lost to our economic rivals."

Nick Molho, head of energy policy at WWF-UK, said: "David Cameron must now put an end to months of government infighting which have badly damaged investment confidence in one of the UK's few sectors of economic growth.

"The ultimate test for the Bill will be through strong amendments on energy efficiency and a decarbonisation target that hold the government to their commitments.

"Consistent political messages are now more important than ever in boosting investor confidence."

A group of MPs led by Conservative Tim Yeo, chairman of the parliamentary Energy and Climate Change Committee, is considering tabling an amendment to introduce a 2030 target.

Even without the target, low-carbon industries welcomed the greater certainty the Bill provided them.

"The Bill provides much-needed investment certainty," said Keith Parker, chief executive of the Nuclear Industry Association.

"A major nuclear new build programme will lead to substantial industrial and employment benefits - including considerable opportunities for the UK nuclear supply chain and a boost for UK manufacturing and construction."

Jeff Chapman, chief executive of the Carbon Capture and Storage Associations, backing a technology in which carbon emissions from fossil fuel plants can be captured and permanently stored underground, said: "The publication of this Bill will give a good deal more confidence to those businesses that are developing the UK's first CCS projects and laying the foundation of a world-leading industry."

Maf Smith, deputy chief executive of RenewableUK, said: "This Bill is crucial in setting the investment framework for the next 20 years and ensuring that we can build on our current world lead in offshore wind and marine technologies, and guarantee clean domestic power and tens of thousands of green jobs."

Audrey Gallacher, director of energy at Consumer Focus, said householders would be most worried about how the Bill would increase bills, and the government must be clear about how it would control costs.

"Customers recognise that making our energy supply greener and more secure will come at a cost. 

"But given the huge sums involved and the extra costs consumers will bear, people need guarantees that they are getting value for money."

She suggested the costs of new generation and network improvements could be spread over a longer period to provide a fairer solution for consumers.

She added: "Demand and energy efficiency measures must also be a cornerstone of energy policy to counter rising energy prices for customers.

"The government's commitment to reduce energy demand through incentives for consumers and businesses is welcome.

"But it will come at a cost - which again will be passed on to customers. We look forward to working with the government on the detail for these measures to help ensure they offer value for money."

The Royal Academy of Engineering welcomed the Bill, saying there was an urgent need for clarity and stability in the UK’s energy policy to enable companies to invest with confidence in new generation technology.

The Academy said it looked forward to helping the government develop a truly integrated energy policy that brings together electricity transport, heat, and the power of a future smart grid to solve the "trilemma" of energy security, affordability and sustainability.

“Energy is at the heart of society and underpins economic growth,” said Sir John Parker GBE FREng, president of the Royal Academy of Engineering.

“Without a secure and affordable supply of energy for the long term, our industries will not be globally competitive.

“The UK stands at a crossroads; we need massive investment in our energy system over the coming years to replace aging infrastructure and create a modern, clean secure energy system.”

Dr Tim Fox, head of Energy and Environment at the Institution of Mechanical Engineers said: “The publication of this new bill is good news for engineers, investors and the general public as it means we are a significant step closer to getting on with the job of building the major infrastructure projects needed to keep our homes warm, the lights on and industry working.

“With a looming energy gap for 2015, creating a stable regulatory framework for the energy sector is absolutely crucial for investor confidence and we look forward to the announcement next year on the details of the incentives, without further delays.

“The fact that energy intensive industries will be exempt from the additional costs to encourage investment in low carbon power is also positive, as it means UK industry won’t be placed at an unfair disadvantage when competing in international markets selling products such as steel.”

Alistair Smith, chair of the Institution of Mechanical Engineers’ Power Division added: "Athough the majority of measures being announced today are positive, and should enable us to meet our 2020 EU renewables obligation, the lack of an emissions target for 2030 leads to longer term uncertainty on clean energy investments. 

"In the absence of this clear target we will likely see a ‘dash for (unabated) gas’ and it effectively removes any legislative incentive to develop Carbon and Capture and Storage technology for gas-fired power stations in the medium-term.

“What is clear is that whatever technologies the UK ends up relying on to meet energy demand, energy prices are set to rise. 

"The UK has enjoyed 20 years of cheap energy which has lead to complacent energy use. 

"People must adjust to the fact that if they want to keep energy costs down they must adjust their behaviour.”

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