Reacting to the publication of today's draft Energy Bill, WWF joined other groups to reiterate the urgent need for a firm and specific commitment to decarbonise the UK power sector by 2030, describing the Bill as major opportunity to move the UK towards an energy efficient economy powered by renewable energy.
However, WWF expressed concern that the electricity market reform process was overly designed to incentivise new nuclear at the expense of other low-carbon technologies despite clear evidence that the costs of nuclear power are soaring.
Nick Molho, head of energy policy at WWF-UK, said: “As made clear by the Committee on Climate Change, decarbonising the UK's power sector by 2030 is an absolute necessity if we are to stand any chance of meeting our legally binding commitments under the Climate Change Act. The Energy Bill provides the UK Government with a unique opportunity to do just that.
“What’s needed is for the Government to state a clear ambition for renewable energy in the UK beyond 2020 and to provide financial support mechanisms that are specifically designed for the renewables sector. As it is, it looks like the process has been rigged for nuclear."
The group said that as low-carbon technologies such as renewables, CCS and nuclear are currently all at different stages of maturity and have different technological characteristics, a reliance on the same support mechanisms would be ineffective.
WWF expressed concern in particular that the energy market reform (EMR) proposals, especially the Contract for Difference Feed-in Tariff (FiT CfD) as currently proposed, which was mainly designed to support nuclear power, were trying to provide the same type of support scheme to all low-carbon technologies.
WWF said that instead, the Energy Bill must provide explicit and targeted support for renewables and urged the Government to reconsider whether the FiT CfD could genuinely be made to work for renewables and failing that to consider other more suitable alternatives.
Nick Molho said: "Given the increasing concerns around the economic viability of new nuclear and the repeated delays to the CCS demonstration programme, renewable energy and energy efficiency are our best bets to deliver a secure, cost-effective and low-carbon power sector by 2030.
“But renewable energy investors need clear, unequivocal, long-term support from ministers, who must face down sniping from the backbenches and certain sections of the media. The Government must also recognise that a one-size-fits-all approach just doesn’t work in the energy sector and that we need targeted financial support mechanisms for renewables.”
WWF also highlighted a worrying lack of clarity as to whether the EMR will provide incentives for energy efficiency measures in the UK. The group said this was a particular concern given the growing doubt as to whether the Government's flagship Green Deal policy will deliver any energy efficiency savings in the homes sector.
Nick Molho said: "Research by the UK Energy Research Centre shows that energy efficiency could reduce the costs of decarbonising the UK's power sector by up to £70bn by 2050. We’d be mad to do a major reform of our electricity market without ensuring that we're maximising the potential to reduce demand.
“The Energy Bill shouldn't be just about incentivising low-carbon generation; it should place just as much importance on encouraging reductions in electricity demand, which is the most cost-effective way of reducing emissions."
On energy affordability, Gaynor Hartnell, Chief Executive of the Renewable Energy Association, commented: “Electricity bills are forecast to keep going up because of increasing gas prices. Ed Davey has acknowledged that shale gas isn’t going to make much impact on the UK. The EMR should limit price increases and not be the cause of higher electricity bills for consumers.”
On the question of fair treatment for all technologies, Hartnell added: "It stands to reason that whatever price nuclear gets, that price should be available to any other low carbon technology not qualifying for subsidy. Under existing arrangements, the Severn Barrage would not qualify for subsidy, and from 2013 onwards nor will landfill gas. Will these be treated on a par with nuclear? If not, why not?"
The question of scale is also critical according to the REA chief. “The Feed-in Tariff must continue to cater for projects up to 5MW in size,” she said. “But we must make sure that the new CFD arrangements are accessible for larger industrial on-site renewables projects.”
The Institution of Engineering & Technology (IET), the non-profit engineering body, said it welcomed the draft Energy Bill but called on the Government to do more to encourage the reduction of electricity usage.
Robert Sansom of the IET, said: “We are surprised that no reference is made to demand in the announcement made today. Support for low carbon generation will inevitably result in higher prices for consumers, but these price increases can be offset by improvements in energy efficiency, thereby reducing energy consumption, which is also better for the environment.
“In addition demand has a crucial role to play in reducing the amount of capacity required. The reforms to the electricity market must recognise this role and ensure incentives are available to reward customers accordingly.”
Friends of the Earth Senior Energy Campaigner Paul Steedman was more critical in his reaction.
He said: "The Government needs to stop obsessing over a way to make the sums for nuclear power add up, stop our homes leaking heat and switch the country from dirty gas to clean British energy from wind, sun and water to help hard-pressed households with their bills.
"After 18 months of dithering, this Bill doesn't even set out a clear purpose, when it should make a simple commitment to decarbonising our electricity supply by 2030.
"All the Bill contains is a desperate attempt to prop up the dying nuclear industry and a way of letting in dirty gas by the back door, even though soaring gas prices have led to rocketing bills.
"More gas and new nukes will only add to bill payers' pain.
"The Government should listen to 85% of people and support clean British energy from our wind, sun and water, as well as cutting energy waste.
"This would kickstart our struggling economy by creating thousands of jobs, give much-needed relief to customers struggling with fuel bills, and boost the Government's green credentials."
Juliet Davenport, CEO and founder of Good Energy, said: "The Government's persistence with Contracts for Difference is playing with fire. These overly complex instruments risk skewing the market towards nuclear and the ‘Big 6’, at the expense of renewable energy and smaller suppliers.
“They will restrict competition in the market, rather than attracting the new investment the industry needs, and the result is that consumers will be the losers in the long run because they will end up having to pay higher prices.
"There is an alternative initially proposed by the government - a straightforward premium Feed-in Tariff would address these problems.
"Renewable energy sourced in the UK is better for our energy security and will lead to lower and more stable prices in the long run, and mean that money spent on our energy bills is re-invested here in the UK. We’ve got a once-in-a-lifetime opportunity to get this right; if the government blows it we’ll be tied into gas and expensive nuclear and prices will continue to spiral higher.”
Bill Easton, Director of Utilities at Ernst & Young, gave his thoughts. “Today’s draft bill is a crucial step as it signals the shift from a debate on policy direction into the details of policy execution,” he said.
“It is clear that the government has been listening hard to the industry and has accepted the need for an overall strategy and policy statement, as well as the need for transitional arrangements that can be activated quickly.
"The level of detail included in the bill and the supporting documents is testament to the complexity of electricity markets and indeed the challenges that still lie ahead. The detail provided starts to give generators a picture as to how the new arrangements will be administered and run and what they may mean for them. However, energy suppliers will be concerned about the lack of detail on future regulations and obligations that they may be required to accept."
“The critical challenge over the next 12 months is for the debate on market reform to converge on agreed and workable solutions."
Matt Bonass, a leading climate change and corporate finance lawyer in Bird & Bird’s Energy and Utilities team, said: “The publication of the draft Energy Bill today is, of course, to be welcomed. However, its impact on investment and project development remains a concern as it is presented for pre-legislative scrutiny only at this stage.
“While this gives more time for debate on the details, it will do little to provide investors with the certainty they are looking for. Further, while the draft Bill sets out the broad themes of Electricity Market Reform, the devil remains in the detail and there is still considerable uncertainty as to the final form of any secondary legislation, for example on CfDs and the capacity market.
“We have seen from other UK renewable energy policies, such as small scale Feed-in-Tariffs and the Renewable Heat Incentive, that there can be a long lead time between initial enactment of primary legislation and the introduction of secondary legislation, so uncertainty is likely to continue for some time yet.
“In addition, in looking to promote certainty, the Government may be accused by some of further muddying the waters. We are in the middle of a consultation on the banding of Renewable Obligations Certificates. Added to this now is the introduction of so-called ‘investment instruments’, quasi CfDs which we are told come with no guarantee of converting into the real thing. Finally, the Government will be authorised to scrap the Renewable Obligations regime entirely and replace it with a Certificate Purchase Obligation regime.
“In short, the great enemy of investment is uncertainty, and there remains much of that in the Bill.”
Mark England, CEO of smart meter provider Sentec, added: “The finalisation of the Electricity Market Reform has been long awaited and it is great to see this hugely significant piece of legislation published. The EMR highlights the government’s commitment to cleaner energy and its dedication to deliver secure, clean, and affordable electricity, and ensure prices are fair . It’s great to see the government looking for ways to encourage renewable generation and reduced energy consumption.
“However all these technological changes will put an immense strain on our national grid. For the network to cope with the strain, careful investment is needed. Priority areas that need to be considered include successful management of the extra stresses on the grid, and a focus on ‘measure, analyse, manage’ as the principle we need to follow.
“Some areas of the network such as the LV section are currently not monitored continuously which needs to be addressed if a truly smart grid is to be realised. Intelligent systems will also need to be deployed to get the important information and alerts out of the data produced when the DECC smart meter rollout is complete.”
Alistair Smith, Chairman of the Power Division of the Institution of Mechanical Engineers, said in response to today's publication: “The Energy Bill is not just welcome but essential if the UK is to maintain a secure energy supply, while at the same time cutting carbon emissions at an affordable cost to the consumer.
“Although this Bill effectively kills off the idea of a truly open UK electricity market, this legislation is necessary in order to encourage companies to build a balanced electricity generating mix, with the correct proportion of baseload nuclear power along with the right balance of intermittent forms of renewable energy such as offshore wind power backed-up by reliable gas-fired generation.
“If these reforms are rejected by the power industry because they don't like certain elements, it may be time for the Government to consider re-taking control of this essential element of our national infrastructure. The UK needs certainty now if we are to avoid jeopardising our security of supply in the relatively near future.”
Andrew Horstead, risk analyst at energy and carbon specialist Utilyx, said: “The UK is set to lose 20 per cent of its generation capacity in the next 10 years and without investors having absolute certainty of a return on investment for new assets in the UK, we’re unlikely to see new builds getting approved. This delay will inevitably mean that we should expect a ‘dash for gas’ as gas will continue to be a crucial component in the UK’s generation mix.
“Affordability, sustainability and security of supply must be at the heart of the UK’s energy policy but the government must ensure that these are given equal attention. Regardless of the new EMR, British consumers and businesses are at real risk of price shocks in the next few years as both energy consumption and energy prices continue to rise. Unless energy efficiency is fully embraced in the home and at work, price shocks and disruption to supply are inevitable.
“Extending the lives of the UK’s nuclear stations could go some way to helping keep the lights on but this is a short term-fix to the much longer-term problem of securing Britain’s energy supply. Now, more than ever, we need a definitive plan for long-term investment and long-term security of the UK’s energy needs.”
Corin Taylor, Senior Economic Adviser at the Institute of Directors, warned the Energy Bill may fail to deliver, and said: "Businesses need clean, secure and affordable energy, but we're concerned that the draft Energy Bill may fail to deliver.
"We need to see a technology-neutral approach adopted as soon as possible, so that the cheapest low-carbon energy sources are prioritised, but the Bill confirms that the Government will try to pick energy winners for at least another decade.
"We hope that the contracts for difference framework will succeed, but it looks like an overly-complex way of delivering much-needed investment in Britain's energy infrastructure."
Maria Wardrobe, Director of External Affairs at National Energy Action, warned: "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. Whilst NEA supports reform of the energy market, it looks as though those on the lowest incomes will suffer the most and are least likely to be able to counter the increase in cost by taking advantage of other existing government policies.
"NEA believes these concerns should prompt a major rethink and ensure the considerable revenue that the Treasury is likely to generate as a direct result of VAT on consumers' increased energy bills and increased carbon taxes, goes back into an ambitious energy efficiency programme, targeted at the most vulnerable"
Dr Neil Bentley, CBI Deputy Director-General, said: “While it is reassuring to see some progress on the Energy Bill, it’s now important that Parliament not only gets it right, but does so as a matter of urgency. With over a fifth of the UK’s generating capacity coming off stream before 2020, we face a real risk of electricity shortages in the second half of the decade.
“The clock is ticking to create the market certainty that will unlock billions of pounds of private sector investment, generating many new jobs across the UK, and securing an affordable supply of energy.
“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.”
Joss Garman, senior energy campaigner for Greenpeace, said: “This is an energy omnishambles. This draft law is bad news for people struggling to pay their household bills, bad news for the UK’s renewable energy industry and bad news for our attempts to tackle climate change.
“The government have missed a huge opportunity to get energy bills and carbon emissions under control, and to bring security to our power supplies. There’s a huge hole where the government should have encouraged energy efficiency measures. These would be the fastest and the cheapest way to bring down both bills and emissions.
“The government should also have backed our home-grown renewable energy industry, but instead this shambles of a bill will make it harder to invest in this important sector. Supporting this vital industry would boost the economy and reduce consumers’ exposure to rocketing gas prices.
“The coalition has decided to throw billions of pounds at the failing nuclear industry, which is going to send household bills even higher.
“The Bill’s failed by encouraging a big increase in our dependence on burning expensive imported gas to generate electricity. This too will increase bills for families and businesses and see money going to countries like Qatar and Norway instead of back into the British economy.”
Dr Gordon Edge, Director of Policy at RenewableUK said: “The timeline DECC has laid out looks very challenging to bring in wholesale change to the electricity market. As this is coming at a time when traditional energy sources are coming to the end of their lifespan, DECC needs to ensure that they continue to consult in order that an energy gap does not appear.
"A gap means fewer options for the UK, which means we risk missing carbon reduction targets, continuing our dependence on imported fossil fuels and energy bills not being insulated from the rising costs of fuel. Furthermore, the wind and marine renewables supply chain needs to be sure that there will be sufficient orders if they’re to base operations in the UK, bringing the jobs and cost savings that we and the Government are keen to see.”
Edge added: “We’re pleased that DECC has engaged and listened on areas like the power purchase agreements and will be asking for evidence on these and that they are willing to look at the role a counterparty can play on the contract for difference. We urge them to work with us on the overall timetable so that developers can be given the surety they need to fully commit to proceeding with their next generation of projects, providing the supply chain with the final spur to invest in the UK and create badly needed jobs.”
Volker Beckers, CEO RWE npower, said: “The energy sector is the engine room of any economy, and Britain needs more than £200bn to make that engine fit for purpose over the next few years. That money will come from private investors not Government, but still adds up to around £8,000 of investment for every household in Britain.
"For Britain to remain an attractive market for investors, energy policy must be given adequate priority and resource across Government.
“We must find the balance between continuing uncertainty and taking the time to get the right mechanisms implemented in the right way, and hopefully the chance for all stakeholders to scrutinise the Bill will help the Government in achieving this aim.
“However, I remain concerned by the amount of change being implemented in the energy sector and the time it is taking. I applaud Government’s appetite for reform, but pulling so many levers at once in such a complex area risks losing sight of your original objectives. What the energy sector needs now is simplicity and clarity; policy that puts the customer and Britain’s economy at the heart of every decision we make.”
Combined Heat and Power Association Director, Graham Meeks commented: “The Bill announced today may be an important step in securing investments low-carbon power generation in the 2020s and 2030s, but may do little or nothing to address the energy challenges we face in this decade ahead of us.
“Consumers are facing the prospect of rising energy costs as old power stations close, but the reality is that the market is facing an hiatus in investment in new power generation. To tackle this problem we need simple measures that will drive investment in proven and reliable carbon-savings technologies – renewables, gas with combined heat and power, and straightforward energy efficiency.
“We welcome the Government’s move to publish the draft Energy Bill and expose it to pre-legislative scrutiny. It is vital that this process results in reform proposals that are workable in practice and which work in the interests of consumers today – delivering truly affordable and reliable low-carbon energy in the coming months and years, not just in the next few decades.”
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