At a glance: Key criticisms of UK draft energy bill in Select Committee report
- 23 Jul 2012, 11:00
- Ed King
An influential body of UK MPs has released a critical report
into UK government plans to reform the electricity market.
Like most countries worldwide, the UK is facing the challenge of
meeting increased levels of electricity demand cutting carbon
emissions. A fifth of the UK's fleet of fossil-fuelled and Nuclear
power stations are likely to come out of service by 2020.
The current economic crisis is also putting intense pressure on
state finances, leading to conflict between the UK's Department of
Energy and Climate Change (DECC) and the Treasury, who control the
The Treasury appear unwilling to ramp up investment in 'green
electricity', and have been accused of blocking renewable energy
initiatives by Energy and Climate Change Select Committee
chairman Tim Yeo.
The 2008 Climate Change Act established a
legally-binding target to reduce the UK's greenhouse gas emissions
by at least 80% below 1990 levels by 2050. In June 2011 the
government adopted a new carbon budget, agreeing a 50% reduction in
emissions by 2025 relative to 1990 levels.
Below I have picked out the key criticisms from the Energy and
Climate Change Select Committee report - these are their own
words - I have not paraphrased or edited the copy, bar adding
explanations which are marked in brackets.
No clear goals:
The Department of Energy And Climate Change
(DECC) stated objectives for reforming the electricity market (to
move to a secure, more efficient, low-carbon energy system in a
cost-effective way) are uncontentious but vacuous; very few people
would seriously object to these aims. However, the lack of specific
outcomes means that there is still uncertainty about what exactly
the government is hoping to achieve through these reforms.
Not enough focus on energy efficiency:
As with many aspects of energy policy, the Government has fallen
into the trap of focusing far too closely on the supply side of the
energy system, while neglecting to consider the contribution that
demand-side activities could make to security and climate change
objectives. Thinking about the demand-side needs to be given a much
higher priority in the Bill, not least because it is likely to
deliver much more cost effective solutions than building ever
greater levels of generating capacity.
It is completely unsatisfactory that DECC's work was not
completed in time to be published alongside the draft Bill. This
suggests that DECC is still failing to give enough priority to
ensuring that demand-side measures contribute to our energy policy
(DECC released a report on how it could reduce
consumer demand for electricity this month. UK electricity demand
in 2010 was 328 TWh - in 2030 it is projected to rise to 411 TWh.
155TWh of demand reduction potential (40%) has already been
Negative effect on independent producers:
Witnesses told us that the EMR (Electricity Market Reform)
proposals as they stand will in fact deliver the exact opposite of
this ambition; they are likely to lead to greater levels of
vertical integration and fewer independent players in the market.
It will become a "big boys' game" that will not work for "little
The Coalition Agreement states that "We will encourage
community-owned renewable energy schemes where local people benefit
from the power produced". However, the Renewable Obligation has not
delivered community-owned schemes and the proposed CfDs are also
unlikely to work for community schemes. A simple Fixed Feed-in
Tariff would be a more appropriate form of support.
(The Renewable Obligation was introduced in 2002.
It places an obligation on UK electricity suppliers to source an
increasing proportion of electricity they supply to customers from
Emissions Performance Standard:
The Emissions Performance Standard (a specified emissions
threshold for new power stations) as currently proposed would
be at best pointless. At worst, the decision to grandfather (once a
plant receives planning permission it will not be affected by
subsequent changes to emissions rules for a certain period) the
initial level until 2045 may undermine our ability to meet
long-term carbon targets and so the length of the grandfathering
period should be reduced.
(Simon Skillings from E3G warned that if the EPS was grandfathered
until 2045, the only lever available to future governments to
regulate emissions from unabated gas-fired plant would be the
carbon price: "it will need to be very, very high")
Dash for gas warning
The Government's intention to review the EPS in 2015 is another
source of uncertainty for investors. It may even cause a "dash for
gas" itself, if investors rush to build gas plant before the
review. We are concerned that DECC's decision to grandfather the
EPS until 2045 is not compatible with our long-term decarbonisation
If too much new unabated gas-fired plant comes forward under
these arrangements, future governments could be faced with a tough
decision either to miss the carbon budgets or to set an extremely
high carbon price.
Time for policy certainty:
It is right to prioritise the decarbonisation of the electricity
system because this is likely to deliver the most cost effective
route to meeting our 2050 climate change targets. Although
statutory carbon reduction targets are set out in the Climate
Change Act 2008, these are economy wide, rather than sector
We conclude that providing greater clarity about the
contribution that the power sector is expected to make towards
meeting these targets would help to provide certainty to investors.
The Government should set a 2030 carbon intensity target for the
electricity sector in secondary legislation based on the
recommendation of the Committee on Climate Change.
What price Nuclear?
Since there is little competitive pressure or prospect of moving
to auctions for new nuclear, we are concerned that the strike price
for nuclear could be driven upwards. We hope that industry claims
that the cost of nuclear is competitive with other forms of
low-carbon energy will be reflected in the offers they put forward
during strike price negotiations.
We do not believe that a nuclear strike price higher than that
given to offshore wind would represent good value for money to the
consumer. The Secretary of State should not agree to contracts of
Lack of cooperation from Treasury:
The perceived conflict between DECC and HM Treasury on some
aspects of EMR is also contributing to uncertainty among the
investor community. We sincerely hope that these two departments
can in future develop a better working relationship than they have
demonstrated to us during the course of our inquiry. We hope that
all departments will present a clear, consistent and united message
as the Bill passes through the House.
This post originally appeared on the
Responding to Climate Change blog and has been reposted here
with permission of the author.