Reaction to today's Energy Bill measures has been mixed with many industry leaders and commentators welcoming the increased support for renewables while disappointment greeted news of the deferred decarbonisation target.
DECC today announced that the decarbonisation target in the Energy Bill will be deferred to after the next election and that the Government’s green energy budget (or ‘Levy Control Framework’ (LCF)) will be expanded.
The resource commitment under the LCF will help to re-establish investor confidence in renewable power, with analysis published yesterday showing investment levels have halved since 2009. With the UK set to be up to 80% dependent on imported gas by 2020 the once-in-a-generation investment phase is essential for safeguarding national energy security.
REA Chief Executive Gaynor Hartnell, who is currently in Athens participating in the EU-wide ‘Keep on track!’ project, said: “The commitment of the necessary budget for the renewable power sector to meet its share of the2020 target, is very welcome news. This should help to draw a line under the recent politicking, which has been so damaging to investor confidence.
“Today’s announcements finally give a suggestion that the Government is getting behind the renewables agenda, which promises 400,000 green jobs across power, heat and transport by 2020, along with a much more secure energy future.”
The Levy Control Framework, which controls expenditure on renewable energy that can be levied through energy bills, is to be tripled to £7.6 billion in 2020 (real 2012 prices), which now also includes support for nuclear and CCS. This means that the renewable power sector can be confident it has the financial backing to enable it play a major role in securing the new investment the UK urgently needs as ageing coal and fossil plant are retired.
REA Head of External Affairs Leonie Greene said: “We are concerned that the implications of this decision for household bills are being wildly over-stated in parts of the media. Households will pay £22 this year to ensure around 10% of their electricity comes from renewables.
“With costs reducing in most forms of renewable power - some dramatically - it should be abundantly clear that securing 30% of our electricity from renewable power in 2020 will be much cheaper than many reports suggest.
“Furthermore there is more to household prosperity than energy bills. The renewable energy revolution means that rather than spending billions importing fossil fuels from abroad, households will be investing directly in the development of UK jobs and enterprise with all the benefits that brings to the UK Treasury and local money supply.
“We anticipate up to 400,000 diverse jobs in the UK by 2020, together with excellent export opportunities.”
However, the REA is particularly concerned about generators’ ability to sell their electricity under the new Electricity Market Reform (EMR) regime. In order to be financially viable under the new ‘Contracts for Difference’, generators must achieve the ‘reference price’ for their power sales. Evidence suggests this is unlikely to be achieved in the UK's illiquid power market.
It argues that unless the route to market is clear and assured, it will be difficult to see how projects can proceed and access the funds the Government has made available today.
Gaynor Hartnell added: “It is essential that there are enabling powers in the Energy Bill for a solution which guarantees renewables generators can sell their power at the reference price and that the details are worked up in order that a mechanism can be implemented if, as we anticipate, it proves necessary.
“We also want to see an increase to the maximum size threshold for small scale feed in tariffs. It is also important that smaller investors have an appropriate and accessible support mechanism.”
A group of independent generators have worked up a proposal which guarantees that generators will be able to achieve the full strike price for their power, and this will be demonstrated to REA members shortly.”
Juliet Davenport, CEO and Founder of Good Energy, the UK’s leading 100% renewable electricity supplier said: “We look forward to seeing the details of the Bill, but the lack of a firm decarbonisation target in today’s announcement is disappointing. It’s a missed opportunity for the Coalition to make its commitment to being the Greenest Government Ever clear.
“However, an agreement on Government support for renewables is welcome news and will hopefully help provide greater certainty to the investment community. It’s time to put the confusion of the last few weeks behind us and get on with the job.”
Jenny Hogan, Director of Policy for Scottish Renewables, said: "There is still a great deal of detail on Electricity Market Reform to be revealed, but today's announcement confirms that the Government remains committed to the growth of renewable energy and to our 2020 energy targets.
"This provides some much needed and long awaited certainty to the industry, which will allow us to really start planning for the future and investing in technologies such as offshore wind and marine energy. In turn we will see a massive reduction in carbon emissions from our power sector over the next decade.
"This is a particularly important announcement for Scotland, given that uncertainty over EMR has been the biggest threat to the development of offshore wind manufacturing and supply chain which could bring many thousands of jobs across the country.
"The UK Government needs Scotland to achieve our 100% renewable electricity target if the UK is to meet its re-stated renewable energy targets."
John Walker, National Chairman, Federation of Small Businesses, said: “While we welcome the much needed certainty the Energy Bill will give to investors to help secure the UK’s energy supply, we are concerned that small firms will be left exposed to ever increasing energy bills.
“The remorseless rise in energy costs is hurting not only individual businesses but also the competitiveness of the UK as a whole. Our research shows that utilities are the main cause of rising business costs for 45 per cent of small firms.
“What we really need is reform of the electricity market and investment in low carbon energy infrastructure to go hand in hand with radical changes in the retail energy markets. This would deliver tighter regulation of the big six energy companies and put in place stronger safeguards for both household and small business consumers.”
Mark Kenber, CEO of The Climate Group, said: “The long-awaited Energy Bill, despite its positive elements and increased support for renewables, is a missed opportunity. It does not put emissions reduction at the heart of the UK’s energy policy. It does not put the UK on a long-term low-carbon, sustainable, clean energy path.
“The Bill is more of a grand compromise; and like all compromises it deals more with the present and the short-term than with the future.”
“Unless there is long-term certainty for investors and clear signals that this country is open for low carbon business in the long-term the UK will be left behind in the global cleantech race. The jobs that could be coming to the UK are going to go elsewhere. If we do not lead, we are bound to follow others who will.”
Solar Trade Association CEO Paul Barwell said:“After a damaging period of infighting, today the Government has given a strong signal of its commitment to the renewables industry with clear financial backing. However, we are still waiting to see if non-domestic solar will receive the support it requires to continue to reduce costs.
“By investing decisively today, our industry can deliver consumers real choice and freedom from rising energy bills before the end of the decade.”
John Cridland, CBI Director-General, said: “This package will send a strong signal to investors that the Government is serious about providing firms with the certainty they need to invest in affordable secure low-carbon energy.
“We now have political agreement on this critical issue and the Government should get the bill on the statute books as quickly as possible.
“As more details emerge, the Government should ensure that those households and businesses most vulnerable to increased energy prices are protected.”
Colin Prestwich, Head of Regulation for SmartestEnergy which purchases energy from more than 600 independent generation sites, commented: “We welcome more detail regarding the FiT CfD arrangements, and are pleased that the Levy Control Framework has been set at a reasonable amount.
“We believe FiT CfDs will be good for independent generators and will encourage more investment by businesses, communities and farmers in renewable energy projects.
“Wind generators in particular are likely to benefit from the greater certainty of income which a CfD provides as it will insulate investors against the increased price volatility which comes from having more variable generation on the grid.
“The single counterparty should give investors more confidence, though there are a few more important details that need to be known. Investors will still be waiting to see what the strike prices are next year before making their investment decisions though.
“The guaranteed price for generators offered by CfDs will also see more Power Purchase Agreement (PPA) suppliers enter the market and stimulate competition.
“We expect the market for short-term PPAs to flourish with the introduction of CfDs and strongly believe that any intervention by Government aimed at improving competition will ultimately prove unnecessary.”
Ben Caldecott, head of policy at environmental investment firm Climate Change Capital, said: "The £7.6bn financial commitment, together with the creation of robust, new price-certain contracts, are significant victories that have created a framework for investment to flow.
"As investors and investment advisors, we are not unduly concerned about the current lack of a decarbonisation target in the Energy Bill, which is after all, meant to be implementing robust targets already enshrined in law. There is already a clear legal commitment to build a cleaner, better energy system.
"By including a government backed counter-party for new contracts, investors will have certainty allowing for a lower cost of capital and a better deal for consumers.
And James Cameron, chairman of the Climate Change Capital and member of the Prime Minister's Business Advisory Group, added: "The Energy Bill will finally give government the tools to attract significant investment into our power sector at least cost. Investment can now flow - creating jobs, helping recovery, spurring innovation - while ensuring our long term economic competitiveness.
"Progress will only happen if government wields its new tools wisely. At stake is a vision of the future. One where we are cleaner, safer and more competitive. Or one where we miss out on the clean energy revolution taking place globally, suffer from climate change and regret our exposure to volatile fossil fuel markets. The government will get the power to make the choice, it must pick a clean future over a failed past.
"To achieve progress quickly we also need clarity on how much renewable power should be built and by when to ensure investment in the UK supply chain. We need contracts for new generation to be signed quickly. And we need a national conversation on the strategic implications of our exposure to volatile gas markets."
John Sauven, Executive Director of Greenpeace, said: “By failing to agree to any carbon target for the power sector until after the next election David Cameron has allowed a militant tendency within his own ranks to derail the Energy Bill. It’s a blatant assault on the greening of the UK economy that leaves consumers vulnerable to rising gas prices, and sends billions of pounds of clean-tech investment to our economic rivals.
“The stakes couldn’t be higher for our climate, our bills, and new green jobs, yet politicians could not be making a greater hash of it.”