Finalised Energy Bill published today

Ed Davey on steps of DECC

The government has today (29 November) published the long-awaited and finalised version of the Energy Bill, alongside proposals to ‘dramatically reduce electricity demand across the whole UK economy’.

The Energy Bill – which does not include a decarbonisation target by 2030, despite widespread support for such a measure – was set up to bring forward £110 billion investment in new infrastructure to ‘keep the lights on and continue the shift to a diverse, low-carbon economy as cheaply as possible’. Shadow Secretary of State, Caroline Flint has criticised the Energy Bill, saying that she will continue to “work to put a decarbonisation target on the face of the Energy Bill”, with Energy and Climate Change Secretary Edward Davey conceding that “there will no doubt be a debate about decarbonisation target through passage of the bill”.

Subject to approval in Parliament, the Energy Bill is expected to achieve Royal Assent in 2013, so that it is fully up and running in 2014 as planned.

The bill outlines reforms to the electricity market including:

  • Contracts for Difference (CfDs), which aim to stabilise revenues for investors in low-carbon electricity generation projects;
  • A new government-owned company to act as a single counterparty to the CfDs with eligible generators;
  • A Capacity Market, allowing for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, to ‘ensure the lights stay on even at times of peak demand’.
  • National Grid: the System Operator is to be appointed to deliver the Electricity Market Reforms, including CfDs, administer the Capacity Market and provide analysis and evidence to government;
  • A Final Investment Decision (FID) process, which will allegedly guard against delays to investment in energy infrastructure;
  • Transitional measures that will allow renewable investors to choose between the new system and the existing Renewables Obligation, which will remain stable up to 2017;
  • An Emissions Performance Standard (EPS) intends to curb the most polluting fossil fuel power stations, ensuring that any new coal fired power stations will have to have CCS fitted to be able to operate within limit.

‘Not delayed’

Speaking in Parliament today, Davey, denied that the bill had been delayed, saying that he “always promised the bill in November” and outlined that the coalition government is “absolutely determined to help cut energy bills for consumers, reduce costs for businesses and bring down our emissions”.

“We propose nothing less than the biggest transformation of Britain’s electricity market since privatisation”, said Davey. 

“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 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.”

Consultation on energy reduction

Conversely, the government has also today opened a consultation on how to reduce energy consumption in the UK, after the Department of Energy and Climate Change (DECC), found that reducing the amount of electricity used in Britain by 10 per cent could produce savings of around £4 billion in 2030 and save 4.5 megatonnes of carbon (equivalent to the amount generated by five power stations a year). The department says that this would ‘more than compensate for the cost of making efficiency investments upfront’.

The consultation on energy demand reduction schemes includes:

  • Paying companies for each kilowatt-hour saved through energy saving measures installed such as energy efficient lighting;
  • Obliging energy suppliers to deliver a specific target of electricity demand reduction in the non-domestic sector through an Energy Company Obligation;
  • Committing to permanent reductions in electricity use to reduce the amount of electricity that needs to be produced;
  • Incentivising uptake of energy-efficient equipment in homes and businesses;
  • Recognising achievements by organisations that commit to buying only highly efficient products could help drive reductions in electricity use.

The electricity demand reduction consultation will close on 31 January 2013.

Announcing the consultation, Davey said: “We need to make our energy supply fit for the 21st century, and in a world of rising gas prices we must power our homes and businesses in a much more efficient way.

“That’s why today I am setting out economy wide, ambitious proposals to cut electricity demand. These build on our energy efficiency strategy published earlier this month and will help us lower bills and reduce the need for expensive new energy generation.”

Missed opportunity

The consultation has been met with dismay from some sectors of the industry feeling that the reduction schemes should have been included in the Energy Bill.

Matthew Spencer from environmental think tank Green Alliance told the BBC: “It is disappointing that we have to wait for another consultation before government decides whether to help people use less electricity. They should be using the [Energy] Bill to create a market for electricity saving, which would avoid the building of as many costly power stations. It would put money back into people's pockets."

However, Energy and Climate Change Minister, Greg Barker, said that though the UK has energy reduction schemes already in place, there are ‘more avenues to be explored’ and that the ‘ambitious proposals, a first for the UK’ will try to find what these are.

One such scheme to reduce energy demand and use currently in place, is the Green Deal, through which householders can take out loans to make energy-efficient improvements to their homes. The Green Deal was last week labelled a ‘shambles’ by one MP, after it was revealed that not one household had yet signed up to the project, despite the application process having been open since 1 October and DECC offering 'early adopters' £1,000.

It is hoped that the Green Deal and the new domestic Energy Company Obligation (which requires energy suppliers to deliver a specific target of electricity demand reduction in the non-domestic sector), will help reduce electricity consumption by nearly 6.5 terrawatt hours in 2030.

Other projects that the government currently has in place to improve energy efficiency in the UK include the Green Investment Bank, officially opened yesterday, which provides finance for investment in green infrastructure.

Energy intensive industries exempt from carbon tax

Edward Davey has also announced today an additional consultation looking into exempting energy intensive industries from additional costs arising from new long term Contracts for Difference. If taken forward, government will also establish a framework to ensure that the costs to other consumers are minimised.

The exemption will require state aid clearance from the European Commission.

Davey said: Decarbonisation should not mean deindustrialisation. Energy intensive industries are an important part of the UK economy, in terms of economic output and employment throughout the supply chain. There would be no advantage – both for the UK economy and for global emissions reductions – in simply forcing UK businesses to relocate to other countries.

“The transition to the low-carbon economy will depend on products made by energy-intensive industries – a wind turbine for example needing steel, cement and high-tech textiles. This exemption will ensure the UK retains the industrial capacity to support a low carbon economy.”

Business Secretary, Vince Cable, added: "Britain is now leading the way to a low-carbon economy and investing in exciting growth sectors of the future. By giving an exemption to industries that use high levels of energy, we are ensuring that the transition to the green economy is a genuine win-win for Britain. So this exemption is a critical reform. It is important that the UK’s energy-intensive manufacturing industry remains competitive whilst significant investments are made to the UK’s energy infrastructure.”

The proposed exemption has been welcomed by those in the manufacturing industry, with John Cridland, Director-General of the Confederation of British Industry, saying: “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.

“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.”   

However, with energy companies set to charge consumers an extra £7.6 billion by 2020, it is expected that there will be public outcry at the possibility of exempting the biggest polluters from paying additional tax.

Read Edward Davey’s Annual Energy Statement and the Energy Bill.