No decarbonisation target in Energy Bill
The Department of Energy and Climate Change (DECC) has today (23 November) released details of next week’s Energy Bill.
With a fifth of the UK’s electricity generating capacity due to close this decade, reforms included in the bill aim to ‘provide certainty to investors’ with the hopes of bringing 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’.
According to DECC, the Energy Bill will also allow energy companies to charge households an extra £7.6 billion (three times the current amount) for low-carbon electricity infrastructure by 2020 to ‘help diversify [the] energy mix to avoid excessive gas import dependency’ and increase the amount of electricity from renewables from 11 per cent today to around 30 per cent by 2020. This will be done through a Levy Control Framework (LCF). The £7.6 billion will not cover the ECO or Warm Homes Discount, which will have separate spending limits to 2015.
A decarbonisation target for the sector, which many, including the Committee on Climate Change and Labour leader, Ed Miliband had called for, will not be included in this Energy Bill.
Instead, DECC has said that the decision on whether to ‘set a range for carbon emissions in 2030’ will be taken when the Committee on Climate Change has ‘provided advice in 2016 on the 5th Carbon Budget which will cover the corresponding period (2028-2033), and once the government has set that budget’.
Speaking on Radio 4’s Today show this morning, Energy Secretary Edward Davey, said that gas would have to remain a player in the electricity market to ‘fill the gaps’ of renewable energy, as "the wind doesn't always blow" and "the sun doesn't always shine”.
The ‘landmark’ agreement on energy policy will deliver a "clear, durable signal to investors”, Davey said today.
“This is a durable agreement across the coalition against which companies can invest and support jobs and our economic recovery. 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.
“They will allow us to meet our legally binding carbon reduction and renewable energy obligations and will bring on the investment required to keep the lights on and bills affordable for consumers.”
One key area of the bill is the introduction of Electricity Market Reform (EMR). It is hoped the EMR will bring about the ‘biggest transformation of the UK’s electricity sector since privatisation’ through the use of two mechanisms: Contracts for Difference (CfD), which are long-term contracts that provide ‘stable revenues for investors in low carbon energy projects’ at a fixed level known as a ‘strike price’; and a Capacity Market to provide an insurance policy for government against future supply shortages.
It is hoped the CfDs will protect consumers from high bills by reclaiming money from generators if the market price of electricity rises above the set strike price, whilst the Capacity Market will allow for ‘capacity auctions’ from 2014 for delivery of electricity capacity in the winter of 2018/19, if needed, to help ensure ‘the lights stay on’ at times of peak demand.
Other details released include plans to:
- Create a government-owned company to act as a ‘single counterparty’ to give investors ‘confidence’ to enter into new long-term CfDs for low-carbon electricity projects. The counterparty will have levy-raising powers to enable it to raise funds from suppliers to meet its costs, including payments to generators;
- Provide certainty to gas investors with a Gas Generation Strategy (to be published alongside the Chancellor’s Autumn Statement);
- Issue guidance to National Grid setting out an indicative range of decarbonisation scenarios for the power sector in 2030 consistent with the least cost approach to the UK’s 2050 carbon target and reflecting both the existing fourth carbon budget and a scenario in which it is reviewed up, as outlined when the budget was set.
‘Humiliating failure’
The lack of a decarbonisation target, as well as the fact that the bill leaves the door open for drilling for shale gas (‘fracking’), has been criticised by MPs and environmentalists alike, with Labour saying that it was a ‘humiliating failure’ by the Liberal Democrats, who have vocally supported the banishment of gas from the electricity system.
"It is outrageous that on the day Ed Miliband committed to a tough cut in Britain's carbon levels by 2030, George Osborne and Ed Davey abandoned their target", said Caroline Flint, Shadow Energy and Climate Change Secretary.
John Sauven, Executive Director of Greenpeace, added: “By failing to agree to any carbon target for the power sector until after the next election David Cameron has allowed a militant tendency within his own ranks to derail the Energy Bill. It’s a blatant assault on the greening of the UK economy that leaves consumers vulnerable to rising gas prices, and sends billions of pounds of clean-tech investment to our economic rivals.
“The stakes couldn’t be higher for our climate, our bills, and new green jobs, yet politicians could not be making a greater hash of it.”
‘Not unduly concerned’
However, environment investment advisor, Climate Change Capital, has welcomed the details of the bill, with Ben Caldecott, Head of Policy, saying: "As investors and investment advisors, we are not unduly concerned about the current lack of a decarbonisation target in the Energy Bill, which is after all, meant to be implementing robust targets already enshrined in law. There is already a clear legal commitment to build a cleaner, better energy system.
"By including a government backed counter-party for new contracts, investors will have certainty allowing for a lower cost of capital and a better deal for consumers."
Renewable Energy Association's Chief Executive, Gaynor Hartnell, commented: “The commitment of the necessary budget for the renewable power sector to meet its share of the 2020 target, is very welcome news. This should help to draw a line under the recent politicking, which has been so damaging to investor confidence.
“Today’s announcements finally give a suggestion that the government is getting behind the renewables agenda, which promises 400,000 green jobs across power, heat and transport by 2020, along with a much more secure energy future.”
