UK: Draft Energy Bill: What does it mean for renewables?

Rachel Parkes

A draft version of the UK’s Energy Bill was released with much fanfare this week, in the hope of advancing the government’s plans to shake up the electricity market and attract £110 billion in investment in low carbon energy.

The Bill, the legislation that will support the UK Government’s Electricity Market Reforms (EMR), essentially lays out provisions for a new electricity market in the UK that will encourage new renewable and other low-carbon generation to come online over the next two decades.

Central to the Bill is a new financial support mechanism for low carbon generation, which are set to replace the current Renewables Obligation (RO) from 2017. However, unlike the RO, the feed-in tariff with contracts for difference (CfD) mechanism will also support other non-renewable low carbon generation, including nuclear and CCS, prompting complaints that the renewables sector could lose out to nuclear.

Meanwhile a capacity market is set to be established to ensure adequate back up power for renewables. Both the market and the CfDs will be supported by the Treasury’s carbon price floor, which will guarantee carbon prices of £16/t in 2013 rising to £30/t in 2020 – both schemes which critics claim could skew the market in favour of nuclear, and prompt a “dash for gas”.

But Ed Davey, the UK’s energy minister, boasted that the Bill will provide investors with the “transparency, longevity and certainty” to bring about the low-carbon infrastructure necessary to fill a massive energy gap – around a fifth of the UK’s generating capacity – that will emerge over the coming decade as major power stations reach the end of their working lives.

Certainly, a move in the Bill to investigate the current power purchase agreement (PPA) system for power purchasing in the UK was welcomed by the renewables industry, which has long felt that smaller renewable generators lose out to the “Big Six” generators in the UK.

But if renewables sector hoped that the Bill would offer up any clarity on the upcoming reforms, particularly the financial support mechanisms, they were to be disappointed. The draft Bill was light on detail, with no concrete information on plans for a capacity market or the levels of financial support the renewables sector can expect.
The delay in real numbers and information will be frustrating for the renewables sector, which would be forgiven for seeing the Bill as, according to one commentator, “yet another promise that clarity and stability are just around the corner.”

Gordon Edge, director of policy at RenewableUK, warned that the timetable was looking “challenging”, adding that the renewables sector needs positive signals from government to secure enough investment to fill the supply gap in the UK.

“As this is coming at a time when traditional energy sources are coming to the end of their lifespan, DECC needs to ensure that they continue to consult in order that an energy gap does not appear,” he said. “The wind and marine renewables supply chain needs to be sure that there will be sufficient orders if they're to base operations in the UK, bringing the jobs and cost savings that we and the government are keen to see.”

With the full bill expected to go to Parliament at some point this year, the sector can hope for some more details to be released by the time legislation is passed in 2013, but it will have to wait for the results of a consultation on the strike price levels, launched next year, for any final decisions. Meanwhile, in a bid to drum up investment interest, the draft Bill includes provision for “investment instruments”, which will aim give details of the likely returns an investor could expect on a renewables project.

But doubt remains. Jim Skea, of research body UKERC, said on Tuesday: “The draft Energy Bill brings more clarity about the framework for Electricity Market Reform, but precisely how nuclear, renewables and CCS will be encouraged is still not clear, and will only become clear when secondary legislation is published. The draft Bill doesn't bring either the waiting or the debating to an end.”

But perhaps most disconcerting is the government’s decision to omit a binding commitment to decarbonising the electricity supply by 2030, something which its own advisors claim is essential to ensure the UK meets its 2050 carbon targets. Instead, a statement from Ed Davey promised to decarbonise the UK’s electricity supply “in the 2030s”, essentially pushing it back by another decade and prompting fears that this is the start of an incremental slip in government commitment to carbon targets.

“Two decades out and we are already seeing signs of slippage on the government's carbon ambitions,” said Leo Hickman on the Guardian newspaper. “Is it any wonder that many people see such goals as hollow words spoken by politicians who live or die by short-term political cycles?”

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25 May 2012
This is a scandal, a denial of the hard fought battle to admit our damaging lifestyles are polluting the planet. We have raped the earth of it's resources, not for need, but greed. In this façade of transparency a policy has been skewed by DECC with help from fossil fuel/nuclear consultants to tilt the sails in their favour by the 'contracts for difference' which will reduce genuine clean projects. The plain fact is renewables are now cheaper and nuclear/fossil fear the competition. If it's a commercial decision then government should stand aside and let them compete fairly - but they cannot.The two year old coalition government is looking like a PR company whose spin of 'greenest government ever' is now embarrassed by the false data of future generation requirement (see: Corruption of governance, Democracy.org) for 2050. It has no answer to the claims, it is allegedly a treasury figure concocted by lobbyists and given to DECC via EDF and Centrica consultants 'borrowed' for their expertise. Money talks, those who make it use it as control - why am I surprised - because I believed in a better future, no more - we are history.

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