The British government has formally announced a bill of reforms that it says will encourage investment, tackle climate change and keep consumers’ bills down.
At the heart of the proposed reforms are feed in tariffs (FITs) with contracts for difference (CFDs), a capacity market and an emissions performance standard.
The sweeping reforms, if passed into legislation, would be the biggest shake-up of the UK energy sector in two decades.
“Leaving the electricity market as it is would not be in the national interest,” said Secretary of State for Energy and Climate Change Ed Davey. “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.”
The bill is designed to attract the £110 million of investment required in the UK’s electricity system, added Davey.
The government wants investors to focus on a balanced portfolio of renewables, nuclear energy and carbon capture and storage (CCS). It plans to build a new generation of nuclear plants suffered a setback recently when German energy groups RWE and E.On backed out of their joint venture.
Reaction to the bill has been mixed.
“We’re concerned that the draft energy bill may fail to deliver,” said Corin Taylor, Senior Economic Adviser at the Institute of Directors. “We need to see a technology-neutral approach adopted as soon as possible, so that the cheapest low-carbon energy sources are prioritised, but the Bill confirms that the government will try to pick energy winners for at least another decade.
“We hope that the contracts for difference framework will succeed, but it looks like an overly-complex way of delivering much-needed investment in Britain's energy infrastructure.”
The feed in tariff CFDs will be a new mechanism to support low carbon forms of generation, including nuclear energy. They will be designed to remove long term exposure to electricity price volatility by providing a fixed, ‘strike price’ for electricity.
The first strike prices will be published in 2013.
In addition, the reforms propose to bring in a capacity market to reduce the risk of blackouts, an emissions performance standard for new coal plant and a carbon price floor.
“The Energy Bill is not just welcome but essential if the UK is to maintain a secure energy supply, while at the same time cutting carbon emissions at an affordable cost to the consumer,” said Alistair Smith, chairman of the Power Division of the Institution of Mechanical Engineers. “Although this Bill effectively kills off the idea of a truly open UK electricity market, this legislation is necessary in order to encourage companies to build a balanced electricity generating mix, with the correct proportion of baseload nuclear power along with the right balance of intermittent forms of renewable energy such as offshore wind power backed-up by reliable gas-fired generation.”
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