Reaction to the draft energy bill - and the questions it raises
- 22 May 2012, 16:00
- Ros Donald and Christian Hunt
Government plans to
reform the UK electricity market were
unveiled in (some more) detail today with the publication of the
draft Energy Bill, which aims to boost investment in low carbon
infrastructure over the next decade, we look at how the plans have
gone down, and what a few of the unanswered questions surround the
bill are.
What will the impact on household bills be?
Much is being made of energy and climate change secretary
Ed Davey's "admission" on the
BBC's Today programme this morning that
household energy bills will go up as part of the market reform.
Ignoring nuclear, the
Telegraph and
Politics.co.uk lay the blame squarely at the
door of renewable emergy. But how much is it going to
cost?
John Humphrys seemed to think consumers were going to see an
extra £200 on their energy bills, possibly echoing a piece by
the
Daily Telegraph earlier this month. In fact,
as we pointed out at the time, this is DECC's assessment of bill
increases if no
reforms are introduced - something Davey noted in
the interview. (Their actual figure is £160 -
see here for more.)
Does the bill contain a stealth subsidy for the nuclear
industry?
One measure introduced in the reform are so-called
contracts for difference (CFDs). The
replacement for existing subsidies and incentives like the
Renewables Obligation, CFDs are supposed to ensure a guaranteed
return for low-carbon electricity, to stop investors being put off
by the higher upfront cost of building new nuclear and renewable
capacity.
There's concern among green campaigners and renewable energy
companies that CFDs are "overwhelmingly skewed to support new
nuclear plants", according to
BusinessGreen and the
Guardian, as the government tries to spur
the building of 16GW of new nuclear power without state
support.
According to numbers from the UK's Department of Energy and
Climate Change, it certainly appears that nuclear will do best out
of CFDs. The
EMR white paper (page 42) says that the cost
of nuclear capital will fall more than any other energy source
included in the scheme.
But the government seems determined not to accept that CFDs
count as a subsidy. In July last year,
DECC responded to concerns in a report by
the Energy and Climate Change Committee that the government was
favouring nuclear, saying:
"The government does not believe that
measures taken to offset environmental externalities - such as the
European Union Emissions Trading System and FIT CfDs - are properly
regarded as subsidies. They are corrections to market failures," it
said.
"The EMR package outlined in the White Paper will mean that by
2030 we will have a flexible, smart and responsive electricity
system, powered by a diverse and secure range of low-carbon sources
of electricity, with competition between low-carbon technologies
helping to keep costs down. This is the rationale for having one
CfD mechanism for all forms of low carbon technology."
Source:
DECC
On the Today programme, Davey told Humphrys there would be "no
public subsidy for nuclear", and that he wanted to level the
playing field to end the "bias towards gas" in the UK energy
market. He said unless nuclear was price competitive, nuclear
projects "won't proceed".
Could CFDs be illegal?
The question of whether CFDs are a subsidy to the nuclear
industry isn't just one for the students of government spin. EU law
forbids member state governments from providing aid to companies
that might give an unfair advantage over EU rivals. On nuclear,
this could be a major stumbling block for the proposed energy
market reform - leading to uncertainty about who is going to underwrite the CFDs. (The EU allows
governments to cover 100 per cent of the extra costs of
renewable technologies, subject to state aid
approval, but it's less certain whether the EU wil allow the same
for nuclear energy.)
UK proposals to give large energy companies money that would
make up the extra upfront cost of generating power from new nuclear
plants and renewables plants are still awaiting EU approval. On the
Today
Programme John Humphrys asked Tim Yeo MP whether CFDs could
actually be illegal. Yeo's answer - that we don't yet know - hasn't
caused much reaction.
The outcome of that decision could have serious implications for
the whole package of reforms, especially given that EDF is in talks
with the Office for Nuclear Regulation about potentially
extending the life of some of the UK's existing nuclear sites.
It doesn't look like anyone has picked up on Yeo's admission yet,
but it shows new nuclear's apparent advantage could stand on some
pretty flimsy foundations.
What about carbon targets?
The elephant in the room here is that the Committee on
Climate Change have recommended that, in order to meet its climate
change targets, the UK needs to
decarbonise the power sector by 2030. The
government appears to be resisting setting binding versions of such
commitments in the energy bill, and BBC environment analyst
Roger Harrabin points out there's some discrepancy
between the CCC's recommendation and the stated aim of the draft
energy bill, which is to "largely decarbonis[e] the power sector
during the 2030s".
In the draft bill, DECC talk about an "illustrative level of
decarbonisation" of 100g of carbon per kilowatt hour of
electricity. This is what the Committee on Climate Change
originally recommended as a target, but they then updated their
advice to recommend a lower target of 50g/KWh. The
bill relegates dealing with that to a footnote on page
275:
100gCO2/kWhin 2030 is an indicative
target level consistent with modelling for the EMR Consultation and
subsequent White Paper and with the previous recommendation for the
power sector from the Committee on Climate Change (CCC).The CCC had
advised in June 2010 that to meet the UK's 2050 target
required decarbonising to around 100g/KWh in 2030 (they later
reduced that to 50g/KWh).
On Twitter, Roger Harrabin said that the CCC
had called the treatment of carbon targets in the draft Energy Bill
"unhelpful and creating more uncertainty".
And all of this is only the draft bill! Expect all of these
issues to be thrashed out in gory detail over the coming weeks and
months.
UPDATE 22/05/2012 16.46:We amended the section on state
aid - as it was quite rightly pointed out, there is no carte
blanche for renewables under state aid laws. We've amended the
section to reflect the fact that the whole scheme needs state aid
approval, although EU state aid laws are more generous toward new
renewables. Thanks to John Moriarty for pointing this out.