Queen's Speech Response

UK Energy Bill must deliver an attractive investment climate for UK renewables

The Queen’s Speech announced that there will be an Energy Bill in the upcoming Parliamentary session. Below is a statement published by a number of organisations who are committed to a low carbon economy.

We welcome the Energy Bill and the need to move to a secure and decarbonised electricity system. However, we remain concerned about proposals expected in the forthcoming draft Bill to change the supporting framework for low carbon technologies to “Contracts for Difference” ("CfDs"). We believe therefore that the Government is right to go through Pre-legislative scrutiny in formulating the final legislation: taking the time now to get it right will save time later. Despite our continued efforts to help Government design a “CfD” capable of supporting major renewable energy financing, we believe the mechanism as currently envisage remains flawed and has the following unintended consequences:

  • Complexity –The mechanism is extremely complicated, introducing new risks and uncertainty, as well as diverging from other well understood European support mechanisms. This discourages generators, financial institutions and the associated supply chain from investing in the UK energy market. 
  • Cost – Consumers will pay for the new risks and costs introduced by this mechanism through their energy bills. Energy suppliers (big and small) will have to manage these liabilities on consumers’ behalf, deterring new entrants from the retail market and reducing existing players’ ability to finance necessary investments. These costs and risks have not been sufficiently modelled by the Government and are likely to be significant. 
  • Transparency – Within the new mechanism, it is unclear that information on the exact levels of subsidy received will be as accessible as under existing mechanisms. These costs must be transparent so that consumers know what they are paying for.
  • Legality – The “CfD” wraps up subsidy for nuclear and renewables in the same package. Subsidising nuclear (a mature technology) will almost certainly result in the package being blocked or delayed by the European Commission under State Aid rules. This uncertainty deters renewable investors and threatens the build up of supply chains and jobs in the UK.

The Government has always stated that if a “CfD” proved unworkable, it would develop other options. One of these, the “Premium Feed in Tariff”, resembles tried-and-tested support schemes for renewables in place in Europe. The Government needs to ensure it has robust and workable solutions for renewables, at least outlined as options in its forthcoming Bill, to enable the delivery of a simple and effective scheme. Progressing a viable “Plan B” would not slow down the pace of reform, but would ensure that the reform could be implemented quickly, maintaining project and supply chain investment.

Additional support schemes should then be defined for carbon capture and storage, and for nuclear, as necessary and appropriate.

15 May 2012