The UK government’s Energy Bill has received a mixed reaction from power industry players and representatives.
The Bill marks the biggest shake-up in the British electricity market for years and introduces new market mechanisms designed to stimulate investment.
Introducing it the House of Commons yesterday, Energy Secretary Ed Davey told MPs that “we are on the cusp of a renaissance in British energy” and added that “the UK is open for energy investment”.
The headline aspects of the Bill are that it does not include a decarbonisation target for 2030 – this has been deferred until 2016 – and a Levy Control Framework has been introduced that will allow utilities to raise £7.6bn by 2020 via customer tariffs to go towards low carbon investment.
Other key market mechanisms to be introduced include contracts for difference – a price paid for every megawatt hour generated – for all generators of low carbon energy, which will guaranteed by a government-backed body, known as the counterparty.
Its policy director Gordon Edge said yesterday that the Bill would “create a strong framework for investment”.
“The Bill provides welcome clarity on how contracts for difference will be allocated, reducing the financial risk to developers. We also welcome the move to set up a counterparty to write the contracts. This will decrease risk and lower the cost of capital.”
The renewable Energy Association also welcomed the Bill. While chief executive Gaynor Hartnell cautioned that “the devil will be in the detail”, she added: “If the new regime is implemented sensitively, consumers and green generators should both win.
“Electricity customers will only pay what is necessary to move the UK towards a more sustainable and secure energy future. That’s because, with these new contracts, if the price of electricity increases, the amount of subsidy required can fall.
“Generators should get a stable price, provided they achieve the fair market price for their electricity. That’s why it’s essential we have a route to market which guarantees this.”
Jeff Champman, chief executive of the Carbon Capture and Storage Associations, said the Bill would “give a good deal more confidence to those businesses that are developing the UK’s first CCS projects and laying the foundation of a world leading industry”.
Nuclear is widely seen as a winner in the Bill. George Borovas, head of the international nuclear projects team at global law firm Pillsbury, said the Bill “will be seen as a firm endorsement of new nuclear projects by both current and potential investors in the UK’s nuclear programme”.
“Long-term nuclear investors have been waiting for both clarity and an illustration of commitment, and will therefore welcome many of the agreements that have been announced,” he said.
He added the establishment of contracts for difference and a counterparty “will reassure many investors who have previously shown justifiable uncertainty”.
“Furthermore, the establishment of the capacity market and the enhanced Levy Control Framework also demonstrate a renewed commitment by the government to support Britain’s much-needed nuclear revival,” he said.
Keith Parker, chief executive of the Nuclear Industry Association, agreed that the Bill “provides much needed investment certainty”.
“A major nuclear new build programme will lead to substantial industrial and employment benefits – including considerable opportunities for the UK nuclear supply chain and a boost for UK manufacturing and construction,” he added.
Meanwhile, the government is to announce a Gas Strategy Plan next week, and this has left some in the gas industry feeling that the Energy Bill fails to deliver.
Stag Energy is an independent UK developer of gas plants. Its chairman George Grant said: “The government’s current proposals on the capacity mechanism, and the absence of specific proposals to support greater security of gas supply, means that there remains insufficient revenue certainty to finance and build gas-fired power projects in this country.”
Meanwhile, Tony Ward, power & utilities partner at Ernst & Young, said the publication of the Bill “marks the opening of the final chapter in the UK’s Electricity Market Reform process” and added that the fact that the Treasury and the Department of Energy “have finally reached an agreement that has preserved much of the long-standing intent behind the reform is welcome and will be a relief to potential investors and existing asset owners alike”.
“The measures announced achieve the difficult balance of preserving the majority of the aspiration to meet our 2020 targets for emissions and renewable energy, while acknowledging the potential role of gas in our fuel mix and moderating consumer bill increases,” he explained.
He acknowledged that the Bill “undoubtedly reflected a degree of compromise” but said that “the UK finally seems to be back on track to create the much needed environment of stability and trust in the energy policy framework”.
He added: “It may not be until autumn 2013 before this Bill reaches the statute book, so maintaining confidence in its safe passage will be vital.
“As ever, details remain to be ironed out or fully articulated. It is inevitable that in the coming days questions will be raised about specific elements, for example exactly how the contracts for difference counter-party will operate, whether the capacity market will actually be deployed, and if so whether it will simply reward existing assets or incentivise new-build? Government and industry should work closely together to deliver on these details.”