Energy Bill – another missed opportunity

The energy bill has passed its Third Reading in the Commons and moves on to the Lords. This complex legislation will determine the shape of the UK’s electricity generation for decades to come.

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The key element of the bill replaces the UK’s energy subsidies with a system of “contracts for difference” and a “capacity market”, under which generators will enter into long-term contracts to produce quantities of energy for a price that is likely to be above standard wholesale prices. Crucial to this new system will be the “strike price” at which renewable and nuclear power generators are guaranteed a return for their production. Those strike prices have been considerably delayed due to a stand-off with the nuclear generator EDF and may be delayed until September. Critics argue that the new system is overly complex, but the UK Government believes it will encourage investment.

Tim Yeo, the Conservative chair of the Energy and Climate Change Committee, tabled the amendment alongside Labour’s Barry Gardiner to attempt to achieve a decarbonisation target by 1 April 2014. Under the Bill as it stands, the secretary of state will be able to set a decarbonisation target for 2030 no earlier than 2016, once the fifth carbon budget has been agreed. The amendment was narrowly defeated by 290 to 267 votes.

Tim Yeo said, “The commons has missed an opportunity today to provide more clarity for investors on the future direction of energy policy. Unfortunately this could mean that urgently needed investment in our energy infrastructure will be slower and the risk of a capacity crisis [including electricity shortages] greater. The continuing uncertainty that will result increases the perceived risk of investment and will therefore raise capital costs, meaning that consumers may ultimately pay more for the new power plants that need to be built”.

This is a view widely shared in the industry and beyond. Clare McNeil from IPPR summed up the concerns, “Yesterday’s vote could push back indefinitely – and possibly for good – some of the plans for jobs and growth many UK and foreign investors have for the UK. Some companies may be willing to wait for a clearer and stronger sense of direction from a new government in 2015, but for others, investment decisions need to be taken now. Without clarity today, markets like Germany or Brazil could benefit at the UK’s expense.”

This is not the first time that we have missed an opportunity to benefit from renewables. As former energy minister Brian Wilson put it in today’s Scotsman, “deference to big companies such as ScottishPower and SSE so complete, that they were allowed to get away with the plea that “uncertainty” did not permit the necessary investments in manufacturing. Even now, there is no strategic framework for projects, grid connections – and jobs”. He also reminds us of the importance of renewables to the developing world, while we squabble over wind farm developments.

That still leaves the issue of who benefits from renewables. At present it is the big landowners, power companies and the Chancellor. As Lesley Riddoch recently put it, “Sticking with wind in a varied energy mix is worthwhile. Letting lairds trouser millions in wind cash is not. Neither is missing the opportunity to completely recast the energy debate in Scotland for the advent of renewables and the prospect of independence.”

That debate should focus on decentralising power, giving communities tangible gains through lower energy bills. A few worthy community schemes won’t achieve this. We need to get local government fully engaged – returning to a former role. Meanwhile, lets hope their Lordships bring some common sense to the decarbonisation target.

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