Energy Bill debuts with a whimper, not a bang

The draft energy bill is a genuinely historic development for the green economy; the problem is we will not know how historic until we see the fine print

22 May 2012, 16:11

Well, that was anti-climactic. After months of fevered speculation and frenetic lobbying, the government today finally published its draft Energy Bill to shrugged shoulders and muttering complaints that "we knew that already".

Inevitably there were a few surprises thrown up by such a wide-ranging piece of legislation: there were very worrying indications the reforms will decarbonise the electricity sector by some point in the 2030s, rather than by 2030 itself as recommended by the Committee on Climate Change (CCC); equally concerning is evidence the emissions performance standard for power plants will be double that recommended by the CCC by 2030, enabling a dash for gas; there are vague plans for new "investment instruments" designed to drive low carbon investment ahead of the full reforms coming into effect; and a suggestion that the government could respond to complaints from smaller renewable energy developers that the new proposals are tilted against them in favour of the energy giants.

But for the most part, the draft Energy Bill looks to be largely in line with the expectations established by the publication of last year's electricity market reform (EMR) proposals. We got confirmation of the four-pronged regime based around contracts for difference (CfDs), a new capacity mechanism to support back-up power plants, a carbon floor price to provide stability for investors, and an emissions performance standard to ban coal-fired power plants.

In short, it remains a genuinely historic package of proposals that should lay the foundations for over £110bn of investment in low carbon infrastructure over the decade. Energy and climate change secretary Ed Davey is probably right to predict over a quarter of a million jobs will be created and those sniping about the reforms' focus on nuclear or their lack of support for their preferred renewable technology should ask if they could imagine such an ambitious package of legislation being put before parliament just a few short years ago. Ministers are not making a fuss of it for obvious reasons, but a centre-right government has tacitly admitted that the energy market is fatally flawed and only a wide-ranging package of state intervention can drive low carbon investment while protecting consumers.

The problem for low carbon energy developers is they don't get any of the answers they desperately need to finalise investment decisions. The government has provided a bit more detail on the framework they will operate under, at the same time as confirming that the industry will have to wait until next year to get the numbers they need to calculate the viability of future offshore wind farms, nuclear reactors, or biomass power plants. Today's announcement boils down to yet another promise that clarity and stability are just around the corner, overshadowed by the ominous prospect of an unreconstructed Treasury getting final say on the crucial numbers that will determine which low carbon projects proceed and which stall.

The real scandal for me is not over renewables vs nuclear, but over the pace of these reforms. The energy market is devilishly complex, but 10 months on from the publication of the initial white paper we really do not seem to be much further forward. Yes, the government does not want to rush such important decisions, but billions of pounds of investment are waiting to be made at a time when, for economic and environmental reasons, the UK desperately needs it. Ministers cannot keep kicking the crucial decisions a few months down the line at the same time as calling for greater urgency from businesses.

The simple fact is that low carbon energy investment will not really begin to flow until the government confirms the strike price at which CfDs will be offered for different technologies. That is why the row over renewables vs nuclear is currently so much hot air. Green campaigners suspect the government will tilt the various strike prices in favour of nuclear, but they have no way of knowing which technology will deliver the most attractive returns to investors until the actual strike prices and the duration of all CfDs is confirmed.

It is the prospect of this two-year investment hiatus that has prompted the government to take the remarkable decision to try and give the secretary of state the unprecedented power to offer wonderfully named "letters of comfort" to selected low carbon developers, reassuring them that they will be guaranteed returns ahead of the launch of the CfD programme. Leaving aside the fact these letters could prove worthless given they are entirely dependent on the EU granting state aid approval for the new regime, they look like a staggeringly direct intervention from the government as ministers desperately try to get new low carbon projects underway.

Green conspiracy theorists reckon this is just another kickback to nuclear, designed to ensure the increasingly troubled plans for new reactors go ahead, but if the government is to avoid a costly and time-consuming legal challenge it will have to offer similar guarantees to some renewables projects. With ministers keen to see the likes of GE and Vestas approve plans for new wind turbine factories as soon as possible, it is a good bet a number of offshore wind projects could benefit from some comforting letters as well.

Personally, I think these powers are a really good idea, having always argued for a relatively interventionist green industrial strategy that ensures the next wave of low carbon infrastructure is built as swiftly as possible. But it is worth noting that the next coalition minister who trots out the lines "we don't pick winners" or "we'll let the market decide" should be laughed out the room. Ed Davey is about to be given the executive power necessary to pick winners, just as the wider EMR programme is an admission that the energy market has failed and needs state intervention to tilt the market in favour of sustainable generation. This is a good day for the green economy, and a very bad day for those in the government who advocate free market anti-intervention ideologies.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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