Kelvin Ross, Deputy Editor, Power Engineering International
November 30, 2012 | 0 Comments
LONDON -- The UK government's Energy Bill has received a warm welcome from renewable 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 on Wednesday, 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.
RenewableUK, a trade body representing the wind and marine energy industry, welcomed the long-awaited publication of the Bill.
Its policy director Gordon Edge said 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.”
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.”
Lead image: On Target via Shutterstock