|The biggest reforms to the UK energy
sector in two decades were set out last week, prompting warnings
from consumer groups and green campaigners that they would raise
bills and penalise renewable energy while boosting nuclear power.
The sweeping reforms, detailed in the Draft
Energy Bill, grant the UK government powers to intervene
in the market on a scale not seen since the industry was privatised.
Under the changes, low-carbon generators including nuclear
companies will receive a fixed price for their energy that
should be higher than they can sell it for on the open market
and ministers will create a 'capacity market' to ensure a
reliable supply of power and prevent blackouts.
There will be a minimum price for carbon dioxide emissions
and an emissions performance standard that will, in effect,
stop any coal-fired power stations being built without technology
to capture carbon.
The reforms will mean major changes to the way the market
is regulated and the way utilities and their smaller rivals
Ed Davey, the Secretary of State for Energy and Climate change,
said the reforms would help to bring forward the estimated
£110bn in private-sector investment that will be needed for
new low-carbon energy capacity and that they could generate
as many as 250,000 new jobs.
"Leaving the electricity market as it is would not be in
the national interest," Davey said, noting that a fifth of
the UK's current ageing power stations are likely to come
out of service by 2020. "If we don't secure investment in
our energy infrastructure, we could see the lights going out,
consumers hit by spiralling energy prices and dangerous climate
change. These reforms will ensure we can keep the lights on,
bills down and the air clean."
Davey said the government's analysis showed that the reforms
would ensure that consumers' energy bills would rise by less
than they would otherwise over the next 20 years.
Charles Hendry, the Minister of State for Energy, said the
government had to intervene - "The market did a good job keeping
down energy prices to the lowest in Europe, but it did not
bring forward enough new investment. If we are going to keep
the lights on in an affordable way, this is not a luxury -
it's absolutely essential."
However, there was widespread concern about some of the most
Maria Wardrobe, director of external affairs at the fuel
poverty charity National Energy Action, said - "The government
can do little to disguise that these proposals will add substantially
to already soaring energy bills and place much more risk on
domestic energy consumers."
She called for VAT revenues from fuel to be recycled into
energy-efficiency programmes to lift vulnerable people out
of fuel poverty.
Richard Lloyd, executive director of Which?, said - "We want
to see more evidence and the small print before we can judge
whether this will work for all of us who are expected to foot
Green groups and some renewable energy companies also attacked
the draft bill, accusing ministers of breaking promises not
to subsidise nuclear power, because the 'contracts for difference'
- by which low-carbon power generators will be guaranteed
a price for their electricity - will favour the nuclear industry.
Davey denied the charge and said the plans would encourage
all forms of low-carbon generation, helping the UK to meet
its climate-change targets.
By giving generators a fixed price guaranteed in advance
for their power, the 'contracts for difference' system should
offset the risks taken by renewable and nuclear developers,
which have to shoulder high upfront costs before they can
start reaping the returns from their investment. If the market
price turns out higher than the 'strike price' agreed in advance,
there will be arrangements to claw back some of the difference.
However, many of the details on how some of the reforms will
work have yet to be set out. For instance, the 'strike price'
for the first round of contracts for difference will not be
set until 2013 and a 'delivery plan' for implementing them
will come into force in mid-2014.
Neil Bentley, deputy director-general, said - "It's now important
that parliament not only gets it right, but does so as a matter
of urgency. We face a real risk of electricity shortages in
the second half of the decade and we are still some way from
having a detailed picture of how the electricity market will
look in the future, on which the success of these reforms
depends. With major investors waiting in the wings, these
details are needed as soon as possible."
Bridget Woodman, of the energy policy group at the University
of Exeter, said - "Rarely can an energy measure have attracted
such universal condemnation. The key players - renewable generators,
most energy companies, consumer groups and commentators -
all recognise that contracts for difference won't deliver
a sustainable energy future ... The government is in a hole
and needs to stop digging before it's too late to put the
UK on a path to a sustainable energy future."