In its report on the Electricity Market Reform (EMR) of April 2011 the Energy and Climate Change Select Committee recognised the “potential” of the new low carbon generation delivery mechanism, but cried out that the consultation paper’s proposals were “overly-complex, potentially expensive and fail to recognise the urgency of the transformation that needs to take place”. In short, EMR for all its innovation and cross-party political support would not attract the investment needed soon enough.
Fifteen months later and the committee have had another chance to review the government’s plans to attract new investment in the UK’s electricity market. In today’s report Draft Energy Bill: pre-legislative scrutiny the committee cast their judgement on every aspect of the government’s 2012-13 Energy Bill and its central tenet, the EMR.
Tim Yeo, the chair of the committee, and his colleagues did not hold back. “Unworkable,” “unacceptable” and “counter-productive” where just some of the salvos fired at DECC, who will sponsor the bill, and HM Treasury, who will have the final say on the financial instruments under-pinning so much of the Bill. In his statement accompanying the report Yeo concludes:
“The Government has a lot of work to do over the summer to make sure that the Bill is fit for purpose in the autumn and is not subject to any further delays.”
Select committees tend to find provocative language in order to help them secure media interest in their often very dull reporting but this is pretty strong stuff from the ECCC. The damning report picks holes into several of EMR’s central components and takes aim at the lack of detail provided by the Government. The later charge is hardly surprising to those following the committee’s progress with the Bill. Its chair Tim Yeo has complained very publicly in recent weeks about the Treasury’s refusal to give oral evidence to his committee on the essential features of its measures in the Bill over which it has control.
Today’s report addresses those measures by attacking the government for failing to back the EMR’s new system of long-term contracts. These new contracts seek to give power companies a guaranteed price for the low-carbon electricity they produce. The theory goes that the long-life of the contracts will reduce the risk of investment in projects with high up-front capital costs – a key barrier to investment in the sector – by providing certainty for a longer-period of time.
The prospered ‘Feed-in Tariffs with Contracts for Difference’ mechanism in the Bill was declared “too complex” and “unworkable”. The committee also warns that the proposed reforms will probably consolidate the dominance of the big six energy companies. Instead the Committee would like to see the Government use its strong credit rating to underwrite the new contracts in order to keep the costs of energy investment down for customers. The report also criticises the Treasury for the spending cap on green levies that can be passed on to consumers in energy bills as they “could mean unacceptable risk to investors”. This is because the levy cap will ration the number of contracts available to the various competing low carbon technologies.
Other concerns around the Bill include:
The draft Bill and its associated documents are fundamentally flawed by the lack of consideration given to demand-side measures – potentially the cheapest methods of decarbonising the UK’s electricity system.
- Given that the Government (and the Committee on Climate Change) see nuclear playing a key role in the future energy mix, Government should consider how carbon and security objectives could be delivered if no new nuclear is forthcoming.
- The ECCC want a clearer understanding of the likely impact of the EMR proposals on the future role for gas. They recommend that the Government, in its forthcoming Gas Strategy, considers the interrelationship between EMR and the capabilities of the gas infrastructure, in particular the potential need for more gas storage.
- They do not believe that it is appropriate for National Grid, a private company, to act as the EMR delivery body.
- The FT quotes Mr Yeo as saying: “If the energy bill does not set a target to largely decarbonise the electricity sector by 2030, then the UK may miss one of the biggest opportunities it has to create a low-carbon economy in the most cost effective way.”
The report comes at a time when the UK media are also reporting on George Osborne’s blocking of a new subsidy regime for renewable energy, as he fights another coalition battle with the Liberal Democrats, this time to ensure that gas remains central to Britain’s future power needs. The FT reports that the stand-off between Mr Osborne and Ed Davey, the Lib Dem energy secretary who wants to prioritise renewables, has infuriated business. John Cridland, head of the CBI employers’ group, claims the “political row” is holding back investment in Britain’s energy infrastructure.