The UK's new Energy Bill was outlined in the UK Parliament by Energy Secretary Edward Davey yesterday, 29 November. The bill was described by Mr Davey as essential legislation to power low-carbon economic growth, to protect consumers, and to keep the lights.
Following extensive consultation, the Bill sets out radical reforms to the design of the electricity market to kick-start a renaissance in the construction of a low-carbon energy infrastructure and in low-carbon manufacturing supply-chains.
Mr Davey said: “The Energy Bill will attract investment to bring about a once-in-a-generation transformation of our electricity market, moving from predominantly a fossil-fuel to a diverse low-carbon generation mix.
“This is the culmination of two years’ work in designing a new market-based approach that will deliver certainty for investors and fairness for consumers.
“The challenge is big. Over the next decade, the investment needed to upgrade our energy infrastructure is almost half of the infrastructure investment needed in the UK. This is far more than is taking place in transport, in telecoms, or in water, and dwarfs the investment that was needed for the Olympics or Crossrail.
“The Bill will support the construction of a diverse mix of renewables, new nuclear, gas and CCS, protecting our economy from energy shortfalls and significantly decarbonising our electricity supply by the 2030s as part of global efforts to tackle climate change.
“This is an economic opportunity - there for the taking. 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.
“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.
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.”
Highlights of the bill:
Oversight of the nuclear industry will be enhanced through creating a new independent statutory nuclear regulator, the Office for Nuclear Regulation.
Regulator Ofgem’s role will be 'better aligned with government priorities and strengthened to safeguard consumers'. As part of this, energy companies will be required to pay compensation to consumers if they breach the terms of their licence conditions.
During the passage of the Bill, proposals will be added to ensure energy companies help consumers to get on the best energy tariff, and to promote energy efficiency through electricity demand reduction.
Government will also take powers to set a decarbonisation range for the power sector for 2030, and a decision to exercise this power will be taken once the Climate Change Committee has provided advice in 2016 on the fifth Carbon Budget, which covers the corresponding period (2028 – 2033).
To further safeguard the competitiveness of Energy Intensive Industries (EIIs) that are particularly exposed to energy costs, Government has agreed to exempt some EIIs from any additional costs arising from the contracts for difference. This proposed exemption will ensure the UK retains the industrial capacity to deliver a low carbon economy. The exemption will be subject to State Aid clearance from the European Commission.
The Bill also outlines reforms to the electricity market to attract record investment.
• Contracts for Difference (CfDs) will stabilise revenues for investors in low-carbon electricity generation projects helping developers secure the large upfront capital costs for low carbon infrastructure while protecting consumers from rising energy bills;
• A new government-owned company will act as a single counterparty to the CfDs with eligible generators; This was a key recommendation of the ECC Committee, and has, says the government, been welcomed by industry and investors. It also intends to develop a two stage process in which projects are able to apply for a CfD once they have cleared meaningful hurdles such as planning permission and a grid connection agreement, and then a small number of hurdles post CfD-award in order to retain the contract.
• The government will taking powers to introduce a Capacity Market, allowing for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, if needed, to help ensure the lights stay on even at times of peak demand. A Capacity Market will provide an insurance policy against future supply shortages, helping to ensure that consumers continue to receive reliable electricity supplies at an affordable cost.
Comment from the industry has been mixed. John Cridland, CBI Director-General, said:
“Energy-intensive manufacturing is finally getting its place in the sun today, by the exemption from necessary new energy costs. This is vital for such companies to play a key part in our low-carbon economy and it is good news that the government has listened to our calls to build in support at this early stage, which will ensure we reap the full economic benefits at the earliest opportunity.
“Equally important is the welcome boost the Bill gives to investor certainty. It will be crucial for investors to see the momentum kept up in Parliament so that the Bill can get onto the statute books as quickly as possible.
“The next vital debate is to decide how to improve energy efficiency and deliver real benefits to the economy. The current policy landscape is too complex, so we will look forward to seeing how today’s electricity demand reduction proposals can move us towards a simpler, more strategic approach.”
But the think tank IPPR warned against the neglect of innovative initiatives. Responding to the Government’s plan to exempt energy intensive industries, it called for smarter incentives for innovation instead.
Clare McNeil, an IPPR Senior Research Fellow, said: “The government is right that going green mustn’t mean going out of business. Energy intensive industries are particularly vulnerable to increases in energy bills but blanket exemptions and handouts are not the answer. We need smarter policies that offer incentives for innovation to reduce the reliance on carbon in industries like steel, cement, paper and pulp, ceramics and glass.”
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