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UK government agrees Energy Bill package

The UK government has unveiled the package for its upcoming Energy Bill, which aims to deliver the biggest reform of the electricity market since privatisation.

The Bill, which will be introduced to Parliament next week, includes new measures to support low-carbon technologies after 2017, as well as an overall increase in financial support for low carbon electricity and energy efficiency.

However, the bill also delays a decision on a 2030 decarbonisation target until 2016, a move which will anger environmentalists hoping for a long-term target to support renewables development.

A key part of the bill is the inclusion of the Contracts for Difference (CfDs) mechanism which will offer low carbon generators – including nuclear and renewables – a minimum price for the electricity they generate.

It also includes provision for a “counterparty”, a government-owned body tasked with ensuring generators are paid under the contracts for difference, and collecting funds from electricity suppliers.

However, there is still no detail about the level of the renewables sector’s market reference price or strike price, the prices at which generators will be able to sell their power without receiving support, or being required to pay it back, respectively, which will set the terms of the investment climate for renewables.

Crucially, the prices will set out levels of support for each technology – including nuclear (despite the Government initially pledging that nuclear new build would not get support funded by the taxpayer).

A spokeswoman for the Department of Energy and Climate Change (DECC) told Renewable Energy Focus that the government will announce details of the strike prices and market reference prices during the middle of next year, for projects coming online in 2014. Meanwhile, further details on allocation of the CfDs and the mechanics of the system will be revealed when the Bill is introduced to Parliament next week.

Infighting

The announcement ends months of coalition government infighting over the content of the Bill – with the Liberal Democrat-led Department of Energy and Climate Change (DECC) pushing for a greater emphasis on renewables, and the Conservative-led Treasury favouring gas.

It appears that agreement was finally reached when the two sides agreed a trade-off, with the Liberal Democrats relinquishing their demand for a 2030 carbon target, in exchange for the Treasury relaxing its hardline stance on subsidies financed by consumers.

The Bill allows for an increase in the financial support under the Levy Control Framework – the Treasury’s pet project to reduce the burden of subsidies placed on consumers - to £7.5 billion in 2020-2021, up from £2.5 billion in 2012-13.

Broadly speaking, this should allow a greater amount of flexibility for the government when deciding which projects will be eligible for CfDs.

A decision on the 2030 decarbonisation target will be made in 2016, once the Committee on Climate Change has offered its advice on how the UK should reach its fifth carbon budget.

“This is a durable agreement across the Coalition against which companies can invest and support jobs and our economic recovery,” said Ed Davey, Secretary of State for Energy and Climate Change.

“The decisions we’ve reached are true to the Coalition Agreement, they mean we can introduce the Energy Bill next week and have essential electricity market reforms up and running by 2014 as planned.”

Meanwhile, the renewables industry in the UK welcomed the news, hailing it as an important step to regaining investor confidence in the sector. “The news that there is rock solid support across government for renewable energy, and clear evidence that Treasury and DECC are in step, provide the industry with exactly the kind of assurances we’ve been calling for,” said Maria McCaffery, RenewableUK’s chief executive. “This blows the last few months of political infighting completely out of the water. This is proof that the Treasury really does get it.”

Renewable Energy Association (REA) Chief Executive Gaynor Hartnell, said: “The commitment of the necessary budget for the renewable power sector to meet its share of the2020 target, is very welcome news. This should help to draw a line under the recent politicking, which has been so damaging to investor confidence.”

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