DECC tables plan to support independent renewable energy suppliers

Energy Minister Greg Barker said: “Our new reforms will create the framework for a far more dynamic and entrepreneurial market”.

The Department for Energy and Climate Change (DECC) has published plans to help independent renewable generators gain entry to the electricity market, in order to promote competition and innovation.

Energy Minister Greg Barker has tabled an amendment to the Energy Bill that will make it easier for independent generators of renewable electricity to sell their power to suppliers via Power Purchase Agreements, thereby improving their access to market.

Energy Minister Greg Barker said: “The Coalition is committed to driving much greater plurality, innovation and competition in the electricity market.

“Our new reforms will create the framework for a far more dynamic and entrepreneurial market, while still ensuring that we get the large scale investment that industry needs. Opening up the electricity market to more competition is a fundamental part of the reforms we are introducing through the Energy Bill.

“It will also allow new smaller players to gain a greater share of the exciting renewable electricity market.”

The amendment allows for the creation of an off-taker of last resort to be enabled, providing ‘back-stop’ power, providing greater certainty for renewable generators and investors.

Independent generators do not usually have a strong supply arm that sells electricity direct to consumers and have been finding it hard to enter the market, which is dominated by the ‘Big Six’ vertically integrated energy companies.

DECC says such companies "play an important role in helping to meet the country’s renewable energy targets, account for a significant chunk of the new energy infrastructure projects that are awaiting final investment decisions", and also introduce innovation and competition into the market.

The amendment would enable the Government to establish a scheme obliging suppliers to buy electricity from renewable generators under specified conditions if they were unable to agree a commercial contract. It would be used as a last resort, to strengthen routes to market and stimulate competition.

Detailed proposals will be developed and consulted on later this year.

Independent generators often sell their power to suppliers via power purchase agreements, and this is how they gain a route to market. The definition can cover a range of technologies and sizes.

Earlier this week DECC also published a draft delivery plan for Contract for Differences (CfDs) and the reliability standard of the future Capacity Market to guide how much capacity is auctioned in 2014 for delivery in 2018 to 2019.

Unveiling the plan, Secretary of State Ed Davey said it should "provide investors with further certainty of government's intent" to help incentivise up to £110 billion of funding for new electricity infrastructure by 2020.

Woodfuel conditions

DECC also issued a condition that new standalone biomass power plants will not be eligible for some subsidies unless they also generate heat, meaning many new plants could be cancelled, according to the Renewable Energy Association (REA), which represents large biomass generators. Gaynor Hartnell, its chief executive, said that combined heat and power (CHP) could not easily be retrofitted onto projects that had already been approved.

The move was welcomed by the Combined Heat and Power Association, which has lobbied in its favour. CHP is seen as much more efficient, as otherwise the heat goes to waste.

DECC also plans to restrict subsidies for biomass to 400MW per plant under the Renewables Obligation, which will operate until 2018.

The restriction does not apply to plants converting from coal-fired power, such as Drax, Britain's biggest power station. This means that large scale, controversial imports of wood pellets to Britain will continue, at least until the subsidies phase out in 2027.

On Wednesday, Mr Davey said that importing wood and burning it as biomass was not a long-term answer to the country's energy needs, leading to expectations that the government would reverse its support policy, but this has not materialised.

"This is something we already knew and does not mark a change in government policy," a Drax spokeswoman said.

DECC does believe that biomass is a transitional technology, "to be replaced by other, lower carbon forms of renewable energy in the medium to long term", it said in a statement.

Environmental groups are concerned that growth in Britain's bioenergy industry will mean the felling of virgin forests for fuel, a practice that was commonplace in Europe and North America before coal was used to power the industrial revolution. They are also worried that it takes 50 years to absorb from the atmosphere the carbon dioxide that is emitted during the burning of a tree.

Drax asserts that the woodfuel it imports has cut emissions in converted units by 80% compared with burning seaborne coal, and that it is certified as sustainable.

Last week, RWE npower said it would close a newly converted 750-megawatt biomass plant at Tilbury by July 21 because of a forecast drop in UK power prices and lack of capital from the Germany-based parent RWE.

Last year Drax also scrapped plans to build a new dedicated biomass plant on its site in North Yorkshire, due, it said, to insufficient government support.

Energy Minister Greg Barker said: “Our new reforms will create the framework for a far more dynamic and entrepreneurial market”.

Strike prices for renewable energy revealed

Viridor's waste-to-energy plant in Cardiff, to be completed next year: it will receive a £90 per megawatt hour strike price.

The prices to be paid over and above the estimated market price for energy from waste, offshore and onshore wind, PV and other renewables were laid out yesterday as part of the government's electricity market reforms, designed to let renewable supply 30% of Britain's electricity by 2020.

The figures cover each year from 2014 until 2019. Some technologies will receive the same price for the whole period, while others will see the price reduce, as their costs are expected to fall.

For projects with a potential deployment capacity over 1 GW:

• Offshore wind will receive £155/MWh, falling to £135 in 2019
• Onshore wind will receive £100, dropping to £95 in 2019
• Large solar PV will receive £125, falling to £110 in 2019
• Hydro will receive £95 throughout
• Biomass conversion will receive £105 throughout.

There are also prices for:

• gasification and pyrolysis (£155-£135)
• anaerobic digestion (£145-£135)
• waste to energy (£90)
• dedicated biomass with CHP (£120)
• geothermal (£125-£120)
• landfill gas (£65)
• sewage gas (£85), and 
• marine energy technologies (£305).

These prices are broadly comparable to the support levels available under the Renewables Obligation, with a number of adjustments to account for the benefits of Contracts-for-Difference (CfDs).

Under the Levy Control Framework there will be a cap, starting in 2015/16 at £4.3 billion in real terms, to limit the costs passed on to consumers.

The application process is now open for developers of renewable electricity projects to apply for Investment Contracts ahead of when the long-term EMR contracts (CfDs) are finalised.

DECC also confirmed that the Government will allow renewable electricity to be imported and exported from the UK to elsewhere to help meet renewable energy targets, boost energy security and investment.

Renewable energy projects on the Scottish islands will receive additional support to connect them to the mainland.

Energy Secretary Ed Davey said the strike prices would “make the UK market one of the most attractive for developers of wind, wave, tidal, solar and other renewables technologies. This will help boost home-grown sources of clean secure energy and enable us to decarbonise the power sector."

He predicted that renewables would contribute "more than 30% to our mix by the end of this decade".

The Government also revealed details of the capacity market, which will be launched next year, in which participants will include existing generators and investors in new plant. They will bid at auctions to offer to provide the total amount of electricity that the UK is expected to need for 2018-2019.

Bidders who are successful will receive a steady price from the year in which they agree to make the capacity available. In return they must deliver electricity as required, or face financial penalties.

The announcements coincided with a report from watchdog Ofgem warning that “without action" electricity margins could tighten in 2015-2016 to 2%-5% depending on demand.

Ofgem’s chief executive Andrew Wright said this “highlights the need for reform to encourage investment in generation”.

£75 million of capital for investment in innovative energy projects was also announced, with the aim of lowering the cost of deployment of offshore wind, renewable heat, carbon capture and storage.

Reactions to the strike prices have been mixed.

Gaynor Hartnell, chief executive of the UK’s Renewable Energy Association, said she was struck by what was left out. “The notable omission is dedicated biomass. We will be pushing for clarification of these as soon as possible.”

She observed that there are “hundreds of megawatts of biomass projects looking to commission under the new support regime and their contribution of clean, baseload electricity will help keep the lights on when the capacity crunch comes”.

The Solar Trade Association's Head of External Affairs, Leonie Greene, criticised the contracts for difference model for mitigating against independent renewable energy suppliers because it depends on generators securing a market 'reference' price for their power, which is then topped up by Government to meet the 'strike price'.

She said that there is then a relatively high risk for independent generators of failing to meet this price, meaning that purchasers of renewable power are likely to offer less attractive terms to independent generators in their long-term Power Purchase Agreements for their output.

“Because of the additional risk the CfD model presents to independent generators like solar power, we would expect to see the additional cost of risk factored into the strike price," she said.

Maria McCaffery, CEO of RenewableUK, representing marine and wind energy sectors, was more enthusiastic: "The levels of the strike prices are challenging but possible considering the reduced time periods that renewables will be supported for under the contract for difference system compared to the Renewable Obligation”.

She did call for more details to be set out for the sake of investors’ confidence. "The secret is consistent, long-term support and investors seeing that Government is behind renewables and low carbon generation for the long term.”

Utility firm RWE's CEO Paul Massara also called for more detail. “This, along with the overall complexity of the proposals and the need to gain EU state aid approval, means significant uncertainty remains. Only once the final detail on contract terms and conditions is clear will a full understanding of the impact these proposals will have on potential investment into the UK and on Britain’s energy consumers be possible,” he said.

The CBI's chief policy director, Katja Hall also welcomed the figures but added: “The Energy Bill’s passage has dragged on long enough — the big task now is to get it on the statute book as soon as possible.”

She added: "giving the Green Investment Bank borrowing powers will give it real teeth to support investments in low-carbon technologies”.

The Government also announced plans to support nuclear power and shale gas.

This includes £100,000 for communities situated near each exploratory (hydraulically fracked) well, and 1% of revenues from every production site.

The Treasury will pre-qualify EDF’s Hinkley Point C new nuclear power project for a Government Infrastructure Loan Guarantee, which is available to any large infrastructure project. Negotiations remain ongoing between Government and NNB Genco (a subsidiary of EDF) on the potential terms.

This support was lamented as being bad for Scotland by Lang Banks, director of WWF Scotland, who commented that: "the negative impacts of the UK Government's obsession with supporting nuclear and fossil fuels appear to outweigh the positive moves made on renewables.

“It would be a great shame indeed if Scotland's sensible ambition to create jobs and cut climate emissions through increased use of renewable energy was undermined by these measures," she continued.

"In environmental terms, plans to offer tax breaks and compensation for communities for shale gas extraction, and billions of pounds to underwrite new nuclear power is just plain foolish," she added. "Worse still, every pound wasted on polluting gas or nuclear means a pound less on encouraging energy saving and supporting more clean renewables."

Will Straw, the IPPR’s associate director, warned that shale gas "won’t do anything to keep energy bills down in the short term. We must ramp up our ambition on energy efficiency through innovative funding mechanisms like the UK guarantee scheme and the Green Investment Bank".

Caroline Lucas, Green MP for Brighton and Hove, said in Parliament yesterday that ministers should be "spending more time working out how to keep fossil fuels in the ground and less time squandering taxpayers’ money on tax breaks for shale gas that scientists say we simply cannot afford to burn if the Government are to keep to their commitment to limit global warming to below 2°".

This was a reference to a report from watchdog the Committee on Climate Change published this week which warned that the country risked missing its carbon emission reduction targets.

David Kennedy, Chief Executive of the CCC, cautioned: “There remains a very significant challenge delivering the 3% annual emissions reduction required to meet the third and fourth carbon budgets, particularly as the economy returns to growth.

"Government action is required over the next two years to develop and implement new policies. A failure to do this would raise the costs and risks associated with moving to a low-carbon economy,” he said.

Exposed: Fossil fuel connections of ministers who voted against the decarbonisation target

38 of the ministers who voted against the amendment to set a decarbonisation target for 2030 last week in the House of Commons have received support from, or are in some way connected to, the fossil fuel industry.

Together with other accusations of influence by lobbyists on MPs, and the alleged giving by Tim Yeo of advice to a rail freight company seeking to influence Parliament, the revelations give fresh impetus to calls for MPs and ministers not to get involved in decision-making on matters in which they have an interest.

The list, together with their connections, is published at the bottom of this article. It is noteworthy that none of the ministers with connections to the fossil fuel industry voted for the decarbonisation target.

The list comes from cross-checking the list of those who voted against the amendment with the list of ministers with such connections published in March by the World Development Movement, which itself had collated it from numerous publicly available sources.

The WDM's exercise found that one third of all 125 government ministers have such connections.

This does not account for any connections held by backbench MPs, such as Peter Lilley, who voted against the amendment. He, for example, is a non-executive director of Tethys Petroleum Ltd, as well as having been paid £22,462 in July 2011 for giving advice to Ferro Alloys Corporation Limited on the management and flotation of a power generating subsidiary.

Top ministers with fossil fuel connections include William Hague, Vince Cable, George Osborne, Michael Fallon and Greg Barker. They all have links with big finance, oil and coal companies that are driving climate change.

Foreign secretary William Hague, who used to work for Shell, helped Tullow Oil escape paying a £175m tax bill in Uganda, one of the world’s poorest countries. Mr Hague made a personal phone call to the Ugandan president on Tullow Oil’s behalf.

Vince Cable, secretary of state for business and skills, in charge of regulating companies, worked for Shell and was referred to as "contact minister for Shell" by a top Shell executive in 2012.

His business and now also energy minister, Michael Fallon, was an independent non-executive director responsible for inter-dealer broking (until 2012) of Tullett Prebon plc, specialising in Energy & Commodities.

Chancellor George Osborne accepted donations worth £38,000 from the head of CQS, a hedge fund that channels millions of pounds into climate-warming energy. Also, his father-in-law, Lord Howell, is president of the Shell and BP-funded British Institute for Energy Economics. Lord Howell was a Foreign Office minister until 2012.

Energy minister Gregory Barker, who shamefully voted against the amendment, has been the head of international investor relations for Anglo Siberian Oil and Sibneft, a Shareholder in New Star European Growth Fund plc and Henderson High Income Trust plc and corporate finance director of the Australian-owned International Pacific Securities.

The vote on the amendment would have been different if just 12 MPs had voted differently.

It would be in the interests of democracy, let alone the planet in this case, that MPs should be barred from voting on matters in which they have a financial interest.

By the way, mandatory carbon reporting introduced by the government will force fossil fuel companies to disclose their carbon footprints, but banks and other institutional investors will not have to declare the emissions arising from their loans and investments.

Yet without them, big oil, gas and coal companies like Shell, BP and Rio Tinto would not be able to raise billions from pension funds, banks and other financial investors based in the City of London and beyond.

By including these ‘financed emissions’ in mandatory carbon reporting regulations, Vince Cable could force financial institutions to disclose their full carbon impact and fully expose the degree of exposure that these institutions have to the carbon bubble.

The 'carbon bubble' is the name given to the assets held by these institutions which may become worthless if they are not allowed to be exploited by national or global level agreements to curb global warming.

It is therefore in the interests of these companies themselves to account for the impact of such investments.

The lists:

Here is the list of ministers who voted against the amendment, together with their connections to the fossil fuel industry:

Gregory Barker	Anglo Siberian Oil (1998–2000) Head of International Investor Relations for Sibneft (1998) 50 Shareholder in New Star European Growth Fund PLC and Henderson High Income Trust PLC.51 Corporate Finance Director of the Australian owned International Pacific Securities
Vincent Cable	Chief economist and other positions at Shell International (the world’s most carbon intensive oil company: A leaked memo addressed to Cable from Shell’s chief executive referred to him as “contact minister for Shell”) (1990-1997).
David Cameron	Accepted £10,000 from Jonathan Green of hedge fund GLG Partners. GLG is a frequent investor in fossil fuels. Accepted £10,000 from Mark Foster Brown of hedge fund Altima Partners (2005), which deals in fossil fuel shares, including Cadogan Petroleum and Lonrho plc,29 which is a multi-sector company involved in building port terminals in Africa “to support the oil and gas industry"
Kenneth Clarke	Director of Foreign and Colonial Investment Trust plc (until 2007)
Nick Clegg	Accepted £9,000 from Neil Sherlock, head of public affairs at auditors KPMG (2006-2008)
Michael Fallon	Director of Tullett Prebon Plc (independent non-executive); inter-dealer broking (until 2012)
Robert Goodwill	Shareholding in Barclays, Gazprom and Lukoil. Accepted £11,000 donation from Mountboon Investments Ltd financiers (2010)
Dominic Grieve	Total shareholdings of more than £240,000 in Anglo American, Standard Chartered, Rio Tinto and Shell
Michael Gove	Accepted £10,000 donation from Aidan Heavey, founder and chief executive of global gas and oil company Tullow Oil(2010)
William Hague	Worked for Shell UK (1982-83). Accepted over £25,000 in non-cash donations from CQS
Stephen Hammond	Director Commerzbank Securities (2000–Present) Has shareholdings in Peal Gas Ltd
Greg Hands	Worked or three different firms in an eight year banking career. (1990-97)
Matthew Hancock	Payment of £3,000 from UBS AG for speech (2011)74
Mark Hoban	Payment of £1,300 from JP Morgan Chase for speech (2010)76
Nick Hurd	Represented a British bank in Brazil (1995-1999).
Sajid Javid	Directorships and other senior positions at Deutsche Bank AG, (2000-2009), JP Morgan Partners LLC (1997-2009) and Chase Manhattan Bank (1991-1994)
Jo Johnson	Investment banker at Deutsche Bank (until 1997)
David Lidington	Worked for BP (1983-86) and Rio Tinto (1986-87)
Mark Lancaster	Management consultant at Palmer Capital a privately owned venture capital and fund management business. (resigned 2012)
David Laws	Vice President JP Morgan’s Treasury Division (1987-1992) Managing Director Barclays De Zoete Wedd (1992-1994)
Maria Miller	Marketing manager Texaco (1990-1994)
Francis Maude	Member of Barclays’ Asia-Pacific Advisory Committee. (2005-2009). The Conservative Party’s Implementation Team which reported to Maude also received significant donations in kind from accountancy firms KPMG, PriceWaterhouseCoopers, Ernst and Young and Deloitte.
Theresa May	Shareholdings held by self and spouse in Prudential Corporation plc. Accepted donation in kind from Michael Hintze who runs the hedge fund management firm CQS Asset Management. (2009)
David Mundell	Accepted £5,000 from Caledonia Investments PLC investment trust. (2010)
George Osborne	Accepted donations and donations in kind from Michael Hintze of CQS hedge fund worth £38,700. Leading beneficiary of donations in kind to the then shadow cabinet from audit firms KPMG (£62,500) and Deloitte (£60,000) both of which have specialist oil and gas departments. (2009) Also, his father-in-law, Lord Howell, is president of the Shell and BP-funded British Institute for Energy Economics. Lord Howell was a Foreign Office minister until 2012
Andrew Robathan	Worked for BP (1991-92)
Desmond Swayne	Manager of Risk Management Systems at the Royal Bank of Scotland and other senior positions (1989-1997)
Elizabeth Truss	Commercial manager at Shell (1996-end date unclear)
David Willets	Senior advisor to Punter Southall a leading actuaries and actuarial consultants.

This is a list of other ministers who were absent for the vote, but who also have such connections:

Alan Duncan	Oil trader and other positions at Shell (1979-1992) Consultant for Vitol.
Philip Dunne	SG Warburg (1981-88) Former Managing Director of Lufkin & Jenrette a US investment bank.
Philip Hammond	Director of Consort Resources Ltd later purchased by Caledonia Oil and Gas (1999-2003)
Oliver Letwin	Directorships and other senior positions at Investment bank NM Rothschild (1986-2009)
John Nash	Assistant Director Lazard Brothers and Co Ltd (1988-1989)
Hugh Robertson	Assistant Director and management head Schroder Investment Management (1995-2001)

Finally, here is a list of ministers in the House of Lords with such connections: Lets see how they vote when the Energy Bill comes before them:

Lord Ahmad of Wimbledon	Senior positions at NatWest, Alliance Bernstein, and Sucden Financia (1991-present)
Lord Deighton	Chief Operating Officer for Europe and other positions at Goldman Sachs. (1983-2005)
Lord Freud	Vice-chairman and other senior positions at S G Warburg (later known as UBS Investment Bank) (1984-2003)
Lord Green of Hurstpierpoint	Chairman and other senior positions HSBC (1992-2010)
Earl Howe	London director of Adam & Co. plc (1987-1990)

2013 will be the year energy management grows up

The Government continues to claim that it is delivering certainty to potential investors in low carbon technology, while these selfsame investors continue to say they don't have it.

The new Energy Bill and the Finance Bill 2013 all contain reams of assurances or regulations intended to balance the competing requirements of the two wings of the Coalition. This is represented in Westminster shorthand by Osborne, Energy Minister John Hayes and Environment Secretary Owen Patersen and 100 or so back-bench MPs on the one hand, and Greg Barker plus many Lib-Dem MPs on the other hand. Energy Secretary Ed Davey leans towards the latter rather than the former grouping, but manages to defend DECC's turf at least some of the time against the parsimonious tendency of the Treasury.

I'm sorry, I'll rephrase that: the above two documents are intended to balance the competing requirements of keeping the lights on for the UK, improving energy security and combating climate change.

Like the resolution called The Doha Gateway Package, which came out of the latest UNFCCC climate talks (vague ideas to do little until 2015), they represent both a victory for business-as-usual and a beanfest for legions of accountants and consultants who will be needed to interpret them for everyone else. In failing to tackle the dangers revealed by the latest evidence of the rate of climate change, they will satisfy no one but these players.

As the world races to increasingly certain climate disaster later this century, governments' payoffs to the bankers to compensate them for the mistakes they themselves made five years ago, mean that they have a plausible excuse not to cough up the mere 1% of global GDP required to ameliorate and mitigate the worst excesses of climate change.

Even as Chancellor George Osborne simplifies the Carbon Reduction Commitment, for the benefit of businesses affected by it, he introduces even more complex rules, governing the Carbon Price Support (CPS), Climate Change Levy (CCL), Carbon Price Floor (CPF), Capacity Payments and Feed-in Tariffs with Contracts for Difference, terms only civil servants could have dreamed up.

And this is after business complained that an earlier version of the Bill was too complicated.

The Gas Strategy promises support for gas extraction but gives no support for a new gas power station.

As I prophesised at the beginning of this year, the prognosis for concrete action on the construction of a new nuclear power station is still unclear, a year later, despite approval being granted by the Health and Safety Executive for NNB GenCo's European Pressurised Water Reactor design, because no one knows from where the money to pay for it will come.

Offshore wind power remains a reasonably safe bet, but only for turbines erected before 2018, when the Renewables Obligation gives way to the carbon price floor. And no one knows yet how that will work, because the price of carbon insists on staying frustratingly low.

All of which means that at the end of 2012, hopes are pinned on the one set of actions that is easier and cheaper to attain than any of the above. This has been a dark horse, largely ignored by government for decades, but now racing up on the outside with a chance to clinch a win, if the imaginative proposals in a recent consultation document are implemented.

I'm talking about energy efficiency of course. Demand reduction is already included in the Energy Bill's Capacity Market, but the suggestion of businesses and individuals being given premium payments for each kilowatt–hour saved by installing energy-efficient equipment are the centrepoint of last November's proposals for reducing energy demand, published by DECC.

The payments would work in a similar way to feed-in tariffs, but instead of being paid for generating renewable electricity, bill-payers would be paid for not consuming electricity, a solution that is, paradoxically, cheaper for energy companies than building new generators. It was first pioneered by Californian utility Pacific Gas and Electric in the 1970s.

The consultation contains other exciting ideas: an energy supplier obligation for the non-domestic sector to encourage energy companies to insulate business premises, similar to the Energy Company Obligation in the domestic sector, and financial incentives to encourage the replacement of out of date equipment like motors, boilers and fridges with new, more efficient versions.

Financiers say they are seeking certainty from Government. The CBI complains at the length of time it is taking for policies to become law. The Federation of Small Businesses and the manufacturers’ organisation, the EEF, complain about carbon taxes.

But investing in energy efficiency has always been able to provide certainty. Marginal abatement cost curves of energy measures, like those provided by DECC, McKinsey, Mott MacDonald or the Committee on Climate Change, consistently put it up front, on the left, below the line. Sure, different measures have different the internal rates of return, and they are dependent on future energy prices and inflation rates. Yet this is familiar territory for business.

It's just that energy management has not so far attracted the attention of senior executives. But from now on it must and will increasingly do so, especially if these proposals, which we should all back, are made law.

The absolute conclusion is: we can wait forever for government to act, and when it does it will never satisfy each and every one of us. But the logic of energy management, correctly applied, will always yield investor certainty. It will save carbon, save money, and create jobs.

Energy Bill means a new sunrise for renewable energy

A new Energy Bill, two years in the making, will triple investment in renewable energy and mean the end for coal-powered generation.

The Bill commits the Government to supporting low carbon electricity to the tune of £7.6 billion by 2020, over three times the current level of £2.3 billion for 2012-13.

The Carbon Capture and Storage Association, the Nuclear Industry Association and RenewableUK welcomed the introduction of the Bill, saying it "would help to unlock billions in investment in low carbon generation, enable the UK to meet its energy security and climate change targets, and create thousands of jobs".

Solar Trade Association's PV specialist, Ray Noble, said the Bill means that "solar power will be massive" and called for a dedicated strategy for PV, "like gas".

Announcing the Bill in Parliament, Energy and Climate Change Secretary, Ed Davey, said: "The Bill will support the construction of a diverse mix of renewables, new nuclear, gas and CCS, protecting our economy from energy shortfalls. It will stimulate supply chains and support jobs in every part of the country, capitalising on our engineering prowess and our natural resources, cementing the UK’s place at the forefront of clean energy development."

The push for low carbon electricity will add £95 a year to the average household bill by 2020, an increase of 7%.

Much of the support will be delivered through long-term contracts for difference (CfD), designed to guarantee stable revenues for investors in low-carbon energy. They will provide cash for generators of nuclear power and renewables if the market price of electricity drops below a specified strike price. A new Government owned company will act as a single counterparty to the CfDs.

A ‘capacity market’ will encourage investors to build gas-fired power plants to provide back-up for when wind farms are not generating. The System Operator (National Grid) will decide the level of generation capacity it judges is appropriate and then contract for it through an auction four years in advance.

Carbon emissions

An Emissions Performance Standard (EPS) set at a maximum of 450g CO2/kilowatt hour (kWh) will curb the most polluting coal-powered stations; any new coal-fired power station would have to be fitted with carbon emission capturing technology. "This law will mark the end of any plans for new, highly polluting coal-fired power stations in this country," commented Greenpeace political director Joss Garman.

Gas-fired power plants would remain unabated at this level, however, prompting Green Party MP Caroline Lucas to call for amendments to the Bill to rule out a new "dash for gas".

The Bill pushes the date for setting a 2030 decarbonisation range for the power sector, to 2016, once the Climate Change Committee has provided advice on the fifth Carbon Budget, which covers the period 2028 – 2033.

This has prompted calls, led by Conservative Chairman of the Energy and Climate Change Committee, Tim Yeo, for amendments to the Bill that would introduce a decarbonisation target for 2030 straight away, a move supported by Alistair Smith, Chair of the Institution of Mechanical Engineers’ Power Division. He said: “The lack of an emissions target for 2030 leads to longer term uncertainty on clean energy investments."

The central modeling for the Bill assumes a scenario where the carbon intensity of electricity generation is 100g/kWh by 2030. Two further scenarios modelled for comparison are either side of this figure: 200 and 50g/kWh. The latter is the level recommended by the Committee on Climate Change.

Wind farm builder Alstom UK, one of seven companies who wrote to the Government arguing that a decarbonisation target was vital to permit them to locate factories in the UK, issued a statement saying: "We will continue to invest, but the pace is likely to be slower without a decarbonisation target."

Nuclear power

Oversight of the nuclear industry will be enhanced through creating an independent statutory nuclear regulator, the Office for Nuclear Regulation.

Richard George, Greenpeace nuclear campaigner, said: “The coalition agreement pledged not to subsidise new nuclear reactors. Yet the energy bill offers massive public subsidies to anyone willing to build new nuclear reactors."

Energy efficiency

During the passage of the Bill, proposals will be added to ensure energy companies help consumers to get on the best energy tariff, and to promote energy efficiency through electricity demand reduction.

Andrew Kuyk, Director of Sustainability for The Food and Drink Federation (FDF), welcomed the certainty, but wanted to see more detail. "We look forward to engaging in further discussions on how to enable ours and other UK industries to maximise... their energy efficiency in increasingly competitive world markets.”

The emphasis on energy efficiency was also welcomed by the UK Green Building Council, and Brian Smithers, director of Rexel UK, who, however, issued cautions: "Firstly, unless monitoring energy use becomes standard, it will be impossible for homeowners and businesses to understand where the biggest wins can be made.

"Secondly, the British public is relatively unaware of energy saving technologies. An energy efficiency information "hub" will be key to educating consumers and businesses alike about the benefits of measures including LED lighting, automation and efficient heating. However, we can’t just leave this to the energy suppliers."

Further reactions

John Cridland, CBI director-general, said: “Energy-intensive manufacturing is finally getting its place in the sun today, by the exemption from necessary new energy costs. Equally important is the welcome boost the bill gives to investor certainty."

Pöyry’s Richard Slark thought less certainty was given than is present in the Renewables Obligation, which will be phased put in 2018.

The Bill was welcomed by the electricity generation industry. Angela Knight, head of Energy UK, called it: “a big and positive step forward. This means that the huge investment will now start being made in our energy infrastructure and this will create jobs and help economic recovery."

Ernst and Young’s Power & Utilities Partner, Tony Ward, cautioned: "It may not be until autumn 2013 before this Bill reaches the statute book, so maintaining confidence in its safe passage will be vital."

This Energy Bill is all about tax revenues from North Sea gas

The Energy Bill compromise is about revenues to the Treasury to help pay off the budget deficit before the next election.

The position on renewables in Britain stands in stark contrast to that north of the border.

The Scottish Government is hoping for independence after 2014. 90% of Britain's oil and gas is in Scottish territory. The Institute of Fiscal Studies is arguing that revenues after the possible independence would be split between the two nations proportionately on the basis of population.

But oil and gas production dropped 18% last year. It will continue this inexorable decline in years to come.

The Scots know this. That's why they are aiming for 100% renewable electricity by the end of this decade. They reckon they will even have more to spare. Perhaps to sell to England and Wales. At this rate, England and Wales are going to need it.

Perversely, George Osborne, David Cameron and the rest of the Conservatives are determined to hitch the UK's wagon to Qatar, from which most of our gas flows: there was a moment two weeks ago when almost 100% of Britain's gas fired power stations were running on gas imported from that Arab country.

But why would they do that?

Many authorities have commented on the volatility of gas prices. They are only likely to rise, affecting each and every one of us and the economy as a whole.

The Committee on Climate Change, in its report, Household energy bills – impacts of meeting carbon budgets, said "Of the total £455 increase [in typical household energy bills between 2004 and 2010] (i.e. 75%, compared to general price inflation of 16% over the same period), by far the largest contributor was the increase in the wholesale price of gas, which added around £290 to bills.”

And Ofgem agrees. In Why are energy prices rising?, we read: “Higher gas prices have been the main driver of increasing energy bills over the last eight years”.

But, forget this. Forget, even, Qatar. This decision is directly related to what the Exchequer receives from North Sea gas extraction.

A dash for gas means a market for Scottish-English gas as well. High gas prices mean higher revenues for the Treasury.

I have prepared this chart of Government revenues from UK oil and gas production, available from figures published here.

Most of this revenue comes from the Ring Fence Corporation Tax, rated at 30% and separate from other corporation tax, which was introduced under New Labour. This prevents taxable profits from oil and gas extraction in the UK and UKCS being reduced by losses from other activities or by excessive interest payments.

It explains why George Osborne gave away £500 million towards further gas and oil offshore exploration in September. As he said at the time, it's because he will get it back in spades from revenue to come: “It will give companies the incentive to get the most out of older fields, creating jobs and delivering more revenue for taxpayers.“

The revealing thing is what happens if you plot oil and gas revenues against total tax revenues.

Then we find, that in the crunch tax year, 2008-2009, oil and gas revenues were at their highest as a proportion of all tax revenue: 2.56%.

As the recession hit, it fell again. The following two years it was at 1.37% and 1.67%, but it has begun to rise again to 2.04% in the current financial year. There have only been three years in the last 20 when it is gone above 2%.

Here are the full figures:

Year	% of revenue from oil and gas	Total revenue (£bn)
00/01	1.24	359.3
01/02	1.47	369.1
02/03	1.37	375
03/04	1.08	397
04/05	1.21	427.1
05/06	2.05	456.8
06/07	1.84	486
07/08	1.45	516
08/09	2.56	508
09/10	1.37	477.8
10/11	1.67	528.9
11/12	2.04	550.6
12/13	1.7	569
13/14	1.34	599
14/15	1.19	633
15/16	0.92	664
16/17	0.85	704

Treasury predictions for the next four years show this percentage to fall dramatically, but this is only because there are wildly optimistic expectations for tax revenue to increase in this period, to £70.4 billion in 2016/17, compared to £55 billion in this financial year.

Now consider this: renewable energy does not provide such an income. In fact it’s a cost, because of the subsidies.

Conclusion: the Energy Bill compromise is not about what happens after 2020. That couldn’t be further from Osborne’s mind. It's about revenues to the Treasury to help pay off the budget deficit before then.

To put it bluntly, it's about who wins the next election, since it will most likely be determined by how well Osborne has managed the economy.

Energy storage must be supported in the Energy Bill

There have been many calls for energy efficiency to be supported in the Energy Bill as it is being reformulated, before it is presented again to Parliament next month.

I totally support these, but I would like to add that there must also be support for energy storage.

Energy storage is the next big thing alongside the smart grid. But there is only a passing mention of it in the current draft of the Energy Bill.

Energy storage systems enable electricity generated at a time of low demand to be stored and used at a later time when electricity demand is high. They go hand-in-hand with the development of the smart grid.

Energy storage significantly increases the effectiveness of wind, solar and tidal generated electricity because the energy is time-shifted to peak demand, which strengthens the business case for investment in a renewable generation scheme and means fewer generation plants need to be constructed.

There is another advantage: if storage is located near the point of use, this reduces the need to invest in power delivery infrastructure and reduces transmission losses.

According to a recent Frost and Sullivan report, some energy storage technologies under development also increase the efficiency of the CHP, waste-to-energy plants and distributed gas-based smaller power plants by utilising excess electricity (and heat) to make it available when it is needed.

Finally, storage can be deployed in tandem with virtual power stations and demand-service response. This gives a national grid the ability to tap into backup power and storage owned by any company of any type connected to the grid. This will considerably open up the market for distributed energy supply, with the potential for huge business opportunities.

The UK Government is supporting innovation in this area with a freshly announced £20 million fund for feasibility and demonstration competitions.

This is fine, but we need regulatory change too. The inability of the market to support energy storage at present needs addressing.

There are many competing storage technologies, all of them interesting:

• Pumped hydro: at present there is only one example in this country


• Ceramic bipolar batteries, being supported already by the Technology Strategy Board for use with PVs


• Compressed air energy storage (CAES) and liquid air, where the main challenge is to develop adiabatic (zero-heat loss) compression to improve efficiency


• Flywheels, which are achieving ever higher speed rotation (e.g. hubless design)


• Hydrogen, generated from renewable energy, and used in conjunction with fuel cells


• Liquid metal batteries, a bizarre but fascinating innovation


• Lithium-based batteries, where developers are improving solid-state conductors, and lifetime


• Sodium-based batteries, where the challenges to improve durability and electrolytes (including solid-state)


• Redox and hydrid flow batteries, where the need is to develop low-cost membranes and real-time impurity sensing


• Supercapacitors, where the challenge is to improve high voltage electrolytes


• Thermal-to-electric storage, where the energy needs to be quicker to access and convert when required.

The UK’s Low Carbon Innovation Coordination Group estimates that, combined with the smart grid, storage solutions could save the UK £4 - 19 billion in deployment costs up to 2050.

Furthermore, innovation can help create UK based business opportunities that could contribute an estimated £6 - 34 billion to the economy from exporting our know-how abroad up to 2050.

Around the world, new energy storage deployment totaled 121MW in 2011. A forecast from Pike Research projects that this will rise to 2,353MW in 2021. In China, the world’s largest market for renewable energy, which also has the world’s largest electricity grid, GTM Research anticipates that the market for energy storage will grow to a $500 million per year market by 2016.

All of this means that there are great prizes ahead for the companies that deliver the winning solutions.

In America, energy storage is already being supported. Various projects have been funded by the American Recovery and Reinvestment Act (ARRA), with $185 million of public money, which attracted $585 million of private investment.

We risk losing out in this huge global market if we do not back our own companies to the extent that America is doing.

Steven Berberich, the President and CEO of the California Independent System Operator, is of the opinion that "storage plus renewables is a marriage made in heaven".

California has a 33% renewable energy mandate and a cap and trade system starting next year. 12GW of distributed wind and solar power is expected to enter the market. Storage has the ability to cover for when there is no wind or at night time.

"It's the economics of storage we need to sort out," Berberich says.

That’s exactly what the Energy Bill should address. But Berberich believes that frequency regulation is the first market opportunity for energy storage, because it is already economic.

A ruling in the States by the Federal Energy Regulatory Commission (FERC) that forces Independent System Operators to take into account the benefit of storage is making them see its cost-effectiveness when used for this purpose.

Two pilot projects are establishing this near New York: one, run by Beacon Power, uses 20 MW of flywheel power, the other, by AES, uses 8MW of lithium batteries.

Another frequency regulation energy storage project in EastPenn, Pennsylvania, uses 3MW of innovative batteries that look like lead acid but with one electrode containing carbon; a cross between ultracapacitors and lead acid batteries with ten times the cycle life of other batteries.

Ian Ellerington, Head of Innovation Delivery at DECC, said earlier this year that if it was possible to fit energy storage support into the Energy Bill it would be a real boost to the industry.

“The energy system has to make sure it’s cost competitive and if storage can be part of that then it would be good to have the commercial mechanism in place to take advantage of the benefits that can be realised through that,” he said.

The Institution of Mechanical Engineers has also called upon the Government to support electricity storage through market reform. It criticises the “lack of understanding about the flexibility of electrical storage and the wider financial benefits it can deliver”.

The way to do this in the Energy Bill is to introduce a separate market category from generation, transmission, distribution and supply.

This will mean that a market support mechanism can be targeted specifically at storage.

The proposed Capacity Mechanism, whose details require fleshing out, should be used for this purpose.

Last week, Tim Yeo, the head of the select committee on energy and climate change, called for a feed-in tariff to support energy efficiency. A similar scheme could also be an option for energy storage.

The rule change in America that made it possible for energy storage to enter the market was to force suppliers to consider energy storage on an equal basis alongside generation before making a decision on investment. This is another option that could go in the Bill.

Energy storage is an exciting and fast-moving field with huge potential, and an essential part of tomorrow’s electricity supply system.

Not to support it in the Energy Bill would be another missed opportunity.

Emissions from coal burning are rising. The Energy Bill must stop this.

Electricity Market Reform must address the continuing problem that the poor price of carbon is incentivising the burning of coal to generate electricity.

More bad news: burning coal to generate electricity in the UK increased by over a third in the first half of 2012, compared with a year earlier, as doing so became more profitable.

This has caused analysts at Thomson Reuters Point Carbon to forecast that the country's greenhouse gas emissions from the energy sector will hit 158.7 million tonnes in 2012, up a staggering 14% on the previous year.

The news comes in figures released last Thursday by the Department of Energy and Climate Change, which show that coal-fired plants produced 67.2 terawatt-hours (TWh), compared to 49.56 TWh the year before in the same period.

This trend was helped by a drop of 50% in the price of carbon permits over the year, which meant that it became, and continues to be at times, cheaper to burn coal than gas. Coal is more than twice polluting as natural gas in greenhouse gas emission terms.

At the same time, the output of nuclear power fell by 5%, or 2.6TWh, due partly to the retirement of plants at Oldbury and Wylfa, Anglesey.

On the positive side, output from renewable sources increased over this period, with wind power rising 28.3% to 7.17TWh.

Even so, the whole of the UK's energy sector emitted 139.8 million tonnes of CO2 in 2011, according to EU data, causing it to leap 28 million tonnes above its permitted cap in the EU Emissions Trading Scheme, which translates to the expensive purchase of emission credits.

The high profitability of coal means the UK is becoming more reliant on the dirtiest form of energy production, a trend that has been ongoing for the last few years, as I have warned before, both last December and in June this year.

The UK's greenhouse gas emissions increased in 2010 by 3.5%, more than double the 1.3% growth in the economy, and the previous years' statistics also show an increase in net carbon dioxide emissions of 3.8%.

Coal use hasn't been this high since the winter of 2007, and is attractive to generators due to the record low CO2 prices in the EU-ETS, which now stand at €7.65. These are prices which the European Commission seems unable to do anything about.

Hopes this week, that a linkup with the Australian carbon market would boost prices, were short lived.

U.N.-issued CERs also fell, even further, to a new record low of €2.5 last week, after a U.N. website showed that chemical companies were issued with almost 4 million offsets for destroying the potent greenhouse HFC 23, confounding expectations that the credits wouldn't be released for at least another few weeks.

Clearly the carbon market is failing abjectly, and having the opposite effect to what was intended.

If the European Commission and the United Nations cannot do anything about this, then there is a chance for the British government to show leadership, through its reform of the electricity market, the details of which are currently being finalised.

The bottom line is that the price of polluting must be higher than the price of buying renewable energy. This is the only way to reverse this trend.

If the combined weight of the Carbon Reduction Commitment and the European Emissions Trading Scheme is still failing to have the desired effect, the Energy Bill must rectify this.

As it stands, text of the draft Bill actually removes the obligation on the part of utilities to purchase renewable energy. This obligation must be kept.

Secondly, the Feed-in Tariffs with Contract for Difference (CfD) must be weighted so that the system rewards the purchase of renewable energy, and the carbon price floor should be set so that the relative cost of purchasing the most polluting forms of energy, i.e. coal, is always significantly more expensive.

This is more or less what was recommended by the Select Committee on Energy and Climate Change, in July, when it sent the Government's plans back to the drawing board.

The Treasury should welcome such a move, since taxing coal-generation would raise further finance which could be directed into subsidising new renewable generation infrastructure, or paying off government debt.

The move would also guarantee that the country's emissions fall within those permitted by the Emissions Trading Scheme and that the UK remains on course to meet its 2020 reduction targets.

The International Energy Agency warned earlier this year that we are in the last moments in history for us to take action to avoid heading towards a 5°C increase in average global temperature and the most catastrophic of those scenarios predicted by the last Intergovernmental Panel on Climate Change (IPPC) report.

In the last two weeks we have heard warnings from other impeccable sources. Richard C.J. Somerville, Distinguished Professor Emeritus and Research Professor at the Scripps Institution of Oceanography issued his warning last week, saying that "if the world as a whole continues to procrastinate throughout the current decade, allowing emissions to continue to increase year after year, then it will almost certainly have lost the opportunity to limit warming to 2 degrees Celsius."

But Defra's scientific adviser, Prof. Sir Bob Watson, a former chair of the IPCC, went even further on 23 August by saying that any hope of restricting the average temperature rise to 2°C was already "out the window".

"If we carry on the way we are there is a 50-50 chance that we will get to a three-degree rise," he said, and he called upon the Chancellor, George Osborne, to reconsider his opposition to tough measures to reduce carbon dioxide emissions. He said that we should instead “demonstrate to the rest of the world that we can make significant progress here".

“We need more political will that we currently have," he concluded.

Well, Coalition Government, as you put the final touches to the Energy Bill, there is still time for you to demonstrate that leadership.

MPs slam Treasury, send draft Energy Bill back for redrafting

Cowboy antics: This woman (Chloe Smith, Treasury Minister) with her boss, George Osborne is delaying and damaging investment in low carbon generation. They should both get out of the way of the experts.

Government policy needs to do more to reduce the demand for energy, say MPs examining the draft Energy Bill, as well as find better ways of subsidising low carbon energy.

They also say that, as it stands, the Bill will reduce competition in the market and raise costs. Furthermore, vacillation in Government is causing delays in the much-needed investment in new energy infrastructure.

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," says the Select Committee on Energy and Climate Change, which is scrutinising the Bill.

The MPs want the Bill to be redrafted in order to capture much more than the 35% of possible energy saving already in the draft, as identified by last week's report on energy efficiency, commissioned by the Department for Energy and Climate Change (DECC).

They condemn the Treasury for failing to provide a witness to their enquiries or even answer their questions in writing, which has “seriously undermined" their ability to do their job. The MPs were told by numerous witnesses that Treasury policy, and in particular the levy control framework, under which the Treasury holds the purse strings of DECC, is having a direct impact on decisions about investing in new energy infrastructure.

Tim Yeo MP, Chair of the Committee, said: "Electricity market reform is essential, but the new contracts proposed by the Government will not work for the benefit of consumers in their present form." He said the Government needs to get back to the drawing board over the summer "to make sure that the Bill is fit for purpose in the autumn and is not subject to any further delays".

Commenting on the report, John Cridland, CBI Director-General, said:
“The Committee rightly highlights the importance of agreeing the design of the contracts for difference, and this must be done by the autumn. But companies are also eager to get on with investing now, and the decision on the renewables obligation support rates cannot wait any longer.”

The Bill’s key measures

The draft Bill contains four key measures: a Feed-in Tariff for low-carbon energy, a Carbon Price Floor, an Emissions Performance Standard and a Capacity Mechanism. The Carbon Price Floor has already been legislated for through the Finance Act 2011, so the Bill focuses on the remaining three measures.

The MPs say that Feed-in Tariffs with a Contract for Difference (CfD) are far too complicated in their presently proposed form. These are a contrivance at the heart of the Energy Bill designed to make it more attractive for investors to put money into low carbon generation, because it is more expensive to construct but cheaper over the long-term.

There are three problems associated with the model, they say. Firstly there is “genuine uncertainty" whether they are legally enforceable.

Secondly, Treasury insistence on capping DECC's spending will increase the risk to developers, possibly causing funding streams to dry up. Drily, the MPs send a message to the Treasury, that in the absence of any word from them, they assume that the statement in the Bill that the UK's statutory climate obligations have priority over the levy cap, means that the Treasury would allow further spending than the cap permits, in order to meet the country's climate change targets. They therefore invite an explanation from the Treasury about how the working of the levy will be modified to make this possible.

The third problem with the model is that by removing an obligation on the part of utilities to purchase renewable energy, this could actually lead to fewer players in the market, and “greater levels of vertical integration", reinforcing the power of the Big Six, which is the opposite of what the Bill is supposed to do. In fact, they say, the Bill should do more to support the entry of smaller players into the market and their continued existence.

They want to see a single counterparty to contracts that is underwritten by the Government, with a contract and design that is legally enforceable, because this is the best way to reduce the cost of capital. At present, what is proposed is a "multiparty payment model" whereby liabilities are borne collectively by all energy suppliers.

They also want to change the registration process for allocating CfDs in order to reduce risk, and extend the eligibility threshold for small-scale Feed-in Tariffs to at least 10MW, again to permit smaller scale generators and community-owned schemes to take part, and call for a fixed Feed-in Tariff to support community renewable energy schemes "up to at least 10MW and potentially up to 50MW in size".

Regarding nuclear power, they want to see more transparency for the process for agreeing a strike price to avoid the perception that decisions are being made “behind closed doors". They want to see a committee of independent experts appointed to oversee this negotiation process.

They don't believe that auctions of strike prices are a great way to deliver a cheaper outcome, because they can actually deter participation by smaller generators due to the uncertainty and expense of taking part. Instead, they propose that the Government should set out a planned reduction pathway for strike prices. This would guarantee a reduction in the level of subsidy paid by consumers over time.

They also want Government to provide clarity on the strike price level beyond 2017 as soon as possible, to help secure investment for emerging technologies like wave and tidal power.

Whilst admitting that the Government is right to prioritise security of supply as a policy condition, they say that ironically the possibility of a capacity mechanism appears to be freezing the prospect of new investment. Therefore, the Government must urgently give more clarity about how the capacity mechanism will work, and give more consideration to the consequences of feeding a large quantity of intermittent generation into the National Grid.

Further modelling is also required to reduce the likelihood of policies leading to a new dash-for-gas, they say. This should include the modelling of demand-side reduction strategies and energy storage, which themselves may need some form of support in order to gain traction in the marketplace

They slam the Emissions Performance Standard as “at best pointless" and, at worst, by grandfathering the initial level until 2045 undermining our ability to meet long-term carbon targets.

They want to see MPs scrutinise any decision taken to exempt generation plant from Emissions Performance Standards, which is permissible in the draft Bill for reasons of maintaining security of supply.

Nor do they think the National Grid should be the body that delivers Electricity Market Reform because it would lead to unnecessary extra costs to consumers and represents a potential conflict of interest.

The Energy Bill is a framework Bill, and will need secondary legislation in order to effect the required changes. Because time is slipping away, the MPs suggest that draft secondary legislation, including a model Contract for Difference, is prepared in time for the House of Commons' formal consideration of the Bill.

Tim Yeo concluded his comments on the Bill by saying that if it “does not set a target to largely decarbonise the electricity sector by 2030, then the UK may miss one of the biggest opportunities it has to create a low-carbon economy in the most cost effective way."

The new Energy Bill is everything the UK doesn't want

The draft Energy Bill, published today, will do nothing to help energy efficiency or make it easier for new renewable energy companies to enter the market place.

It is too complicated, biased towards the Big Six, gas and nuclear, and still contains many uncertainties.

Even the Institute of Directors thinks so. Corin Taylor, its Senior Economic Adviser 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.

"It looks like an overly-complex way of delivering much-needed investment in Britain's energy infrastructure."

Joss Garman, senior energy campaigner for Greenpeace, slammed the Bill for failing to do anything about energy efficiency, “the fastest and the cheapest way to bring down both bills and emissions, and said it will make it "harder to invest" in renewable energy, particularly for small generators.

“The coalition has decided to throw billions of pounds at the failing nuclear industry, which is going to send household bills even higher," he said, adding that by encouraging greater "dependence on burning expensive imported gas to generate electricity", this "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 Neil Bentley, CBI Deputy Director-General, said there are still many unknowns. “We are still some way from having a detailed picture of how the electricity market will look in the future," and that it was now up to Parliament to ensure that it "not only gets it right, but does so as a matter of urgency".

“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," he added.

Which? executive director Richard Lloyd is sceptical and said he "wants to see more evidence and the small print before we can judge whether this will work for all of us who are expected to foot the bill”.

"Contracts for Difference could see potential savings for consumers but the Government must be honest about the cost that this investment will involve," he added, at the same time calling for reform of the retail market and "an effective energy efficiency strategy".

The IPPR also says that a "tax on the emissions of power companies contained in today’s Energy Bill will do nothing to reduce carbon emissions while piling more cost on to the shoulders of already hard-pressed consumers in the UK, and threatens to damage the reputation of policies aimed at tackling climate change". It says it will waste £1 billion and argues for a different approach to raising the carbon price and raising certainty for investors that would see the creation of a European Carbon Bank to manage the price at an EU-level.

The Institution of Engineering & Technology (IET), the non-profit engineering body, also expressed surprise that "no reference is made to reducing demand in the announcement made today".

The chief mechanisms for promoting low carbon generation and keeping the lights on are the feed in tariffs with contracts for difference (FIT CfD) and the creation of a capacity mechanism. But how will they work?

What is FIT CfD?

It is a type of power purchasing agreement between the generator and the purchaser that guarantees a price over a period of time, with a top up, equal to the price difference between the cost of producing the electricity and the current market price.

They are intended to help provide a guaranteed, fixed return on investment to compensate for the high initial cost of constructing low carbon generation plant.

The Bill's impact assessment admits that “only low-carbon projects that are able to secure FIT CfD contracts will be able to participate in the market".

For intermittent generation like wind and solar power, pre-selling a day ahead in the electricity market, a common practice, would give it a low price. You might think this was an advantage for renewables, but it is not if a higher price is required to repay investors.

The Bill allows for FIT CfD contracted plant to receive a top-up price to compensate for this perceived disadvantage. But as the price of constructing new plant comes down, this policy could actually prevent some types of renewable energy from being as competitive as they otherwise would be.

However, it should remove or improve the situation where wind farms are currently paid not to produce electricity, which has been seized on by anti-wind farm protesters as a reason to oppose them.

In a future Britain where a FIT CfD package is implemented, there will be savings in carbon costs as decarbonisation will be more rapid than without the package.

Generation costs would also reduce as there will be reduced output from gas plant and more from coal-with-CCS (carbon capture and storage) plant (coal is cheaper than gas).

This assumes that CCS materialises as an installed technology for coal-fired plant. This is not an inevitable outcome if gas plant becomes relatively cheaper due to the introduction of the much-criticised low Energy Performance Standard (EPS) for generation plant of 450g/kWh being proposed by the Bill, that would let gas plants be constructed without the need for expensive carbon capture and storage.

It's a gamble. The modelling used by DECC argues that by the latter half of the next decade, assuming nuclear power stations come on stream and are in budget, then consumer costs for electricity will be reduced if fossil fuel prices are high. The question is, whether anyone believes this will happen.

If this low carbon generation does not arrive, more fossil fuels will be burnt and the UK will spectacularly fail to meet its carbon emission targets of 50g CO2/kWh in 2030: it will be 190g CO2/kWh.

Under FIT CfD, consumers will be shielded from longer-term wholesale price increases, but, equally, if prices go down their bills will not.

And in the long run, prices from renewable energy installations are bound to reduce as the technologies mature, as Ed Davey admitted in a television interview with Andrew Neil on Sunday, i.e., consumers could end up paying more than they would otherwise.

More damagingly, the impact assessment says, "changes in wholesale prices only affect the amount of support paid out by Government; hence the price risk is borne by Government balance sheets."

If the price to guarantee the building of new nuclear power stations is on the Government balance sheets, then this is the very definition of a public subsidy and will not be permitted by Brussels.

Assuming it does proceed, then overall revenue expectations for generators would be based upon the agreed FiT CfD strike price.

For nuclear power, a ‘strike price’ of over £150 per MWh (assuming a 70% capacity factor), or, at the very least, £135 (assuming 80% capacity factor), would be required by a credit rating agency in order for EDF to achieve is nuclear build plans, according to Dr. David Toke, Senior Lecturer in Energy Policy at the University of Birmingham.

This is more than the figure of around £130 per MWh that offshore wind farm owners are currently being paid; which is made up of two ROCs, worth around £42 per MWh each, plus the wholesale electricity price, around £45 per MWh.

It would mean that consumers would be paying more for their electricity just to support nuclear power.

Capacity market

With the proportion of wind power expected to rise to 25% in the next 10 years, increased capacity is required to cater for days of high demand and low wind.

The capacity market is a strategy being proposed by the Government to find the cheapest way of meeting this demand for extra generation capacity.

It is based on the assumption that 19GW (around 20%) of total generation capacity is expected to go off-stream between now and 2020, compared to around 6GW that closed in the last decade.

However, EDF has announced this week that it is to ask the Office for Nuclear Regulation if it can keep open its existing eight nuclear power stations for a further 10 years.

If this were to happen, there would be plenty of time for extra gas and renewable capacity to be built, which would preclude the need for new nuclear power stations.

In particular, the capacity market strategy favours the construction of new gas plant, with the impact assessment for the capacity market containing an example of how it will benefit a typical new Combined Cycle Gas Turbine plant. It would receive the highest revenues: a total of £275 per kilowatt. This is likely to stimulate the building of new gas-fired power stations.

A capacity market is a significant intervention in the market with potentially substantial administrative costs for businesses.

This will disproportionately affect small generators and new entrants in the market, in other words favour the status quo of the Big Six.

This is not likely to go down well with anyone except the Big Six themselves.

In summary, in their current form, the proposals do not guarantee lower bills for consumers, do not support energy efficiency, and seem artificially to favour nuclear power and gas power generation with no guarantee of meeting the UK’s carbon emission reduction goals. There is also no guarantee that they will be permitted by European Union rules.

Uncertainties shroud implications of Energy Bill proposals

The Government's draft Energy Bill contains increased support for nuclear power, but will not quickly dispel uncertainty for potential investors in low carbon Britain.

Electricity bills for consumers are likely to rise by between £100 and £200 as a result of price guarantees over long time periods to new nuclear power station developers for the electricity they will produce.

These guarantees come in the form of something called “contracts for difference", the difference being that between the cost of producing the electricity and the current market price.

Speaking on BBC Radio 4 this morning, both Tim Yeo, Chairman of the select committee on energy and climate change, and Ed Davey, Energy Secretary, attempted to argue that this was not a subsidy but an incentive.

Whatever the specifics in the bill, the remaining uncertainties surrounding it will continue to include:

• the legality of any subsidy for low carbon technologies with regard to European rules on state aid
• the identities of the counterparties for the contracts for difference
• whether the Treasury is going to keep its cap on the cost to consumers of the incentives
• and whether the government will accept the recommendations of the Committee on Climate Change that emissions need to be cut to 50g of carbon dioxide per kilowatt-hour by 2030, to provide certainty to investors.

It was the Treasury that put the limit on the cost to consumers of the solar feed-in tariffs. It would be ironic in the extreme if it were to make an exception in favour of nuclear power.

There are also uncertainties about whether the public will accept any policy that puts energy prices up.

On BBC's Today programme, the Energy Secretary Ed Davey reiterated Chris Huhne's promise last October that there would be no support for nuclear unless there were similar types of subsidy for renewable energy.

"Unless nuclear can be price competitive," he said, “as the industry says it can be, these nuclear projects won't proceed."

He said that the Bill will try to avoid the bias towards gas that exists at the moment in the market and create a market structure with different incentives.

"We need to decarbonise the economy in the most affordable way that is fair to consumers.

"No one knows exactly what price consumers will be playing for electricity in the future because no one knows how prices are going to rise.

"We do know that if we don't reform the electricity market then they would be rising by at least £200."

He reminded listeners that consumers in this country are in general paying less than in the rest of Europe for electricity.

Dr David Toke, senior lecturer in Energy Policy at the University of Birmingham, believes that nuclear energy in the UK is a "dead duck" that cannot be resurrected.

He compared trying to sell investment in nuclear power to trying to sell Greek government debt bonds: "ridiculously high rates of return are required which mean ridiculously high electricity prices have to be charged".

Dr. Toke said that nuclear power is "unnecessary in the mix and that the measures in the energy bill are designed, as Patricia Hewitt admitted, in particular to support nuclear in particular and not renewable energy or energy efficiency.

"The proposals are restricting them because they are cumbersome. Credit investment agencies don't like nuclear," he said. He predicts that nuclear newbuild “won't happen unless the coalition government tears up its manifesto commitments and gives the nuclear industry a blank cheque".

Tim Yeo, chairman of the Energy and Climate Change Select Committee, said the bill needs to address "very precise questions" about the incentives.

"We hope that the draft bill is going to introduce certainty for ," he said.

“Even if we didn't have a bill, prices are likely to rise," he said, “because the global demand for energy is rising very quickly, so fossil fuel prices will continue to rise."

He said that with the contracts for difference that are at the heart of the bill, “we need to know exactly who the counter parties are with whom the contracts will be made and what the credit status of that counterpart is".

“If it is the government who is guaranteeing the price, then that reduces the risk, which reduces the cost of borrowing capital, which will eventually reduce the cost of electricity. We need this not just for nuclear but also for the other renewable technologies which cannot compete with high emitting fossil fuel technologies.

"It's important to remember that fossil fuel plants are cheaper to build but more expensive to run, whereas with renewables and nuclear it's the other way round."

He pointed out that we already have subsidies for renewables in the form of the renewable obligation certificates, which affect electricity bill prices.

The new Energy Bill should abandon support for nuclear newbuild

The draft Energy Bill expected this week should face the reality: it makes more sense to give 100% support to renewable electricity and energy efficiency than to continue trying to attract interest in expensive nuclear newbuild.

Last summer's Electricity Market Review White Paper assumed that the UK would soon have 16 GW of new nuclear capacity, with the first new nuclear reactor scheduled to become operational in 2018. Less than a year later, this now seems laughable.

The truth is that the ongoing fiscal crisis in the Eurozone means that the cost of capital is only going to rise. It is the high initial cost of new nuclear power stations and their long payback period that is the reason why nuclear operators are already pulling out. The coming fiscal firestorm will be the final nail in the coffin.

With the Government due to publish its new Energy Bill, now is the time for it to recognise this reality and stop trying to flog a dead horse. Otherwise, its pro-nuclear policy risks spending far more public money than it already has on feed-in tariffs for solar photovoltaics. It will make that amount of cash look like a drop in the ocean.

It's right for the Cabinet to worry, as it is doing, about whether the Green Deal will work. But it would be even more sensible to re-examine its policy on nuclear power - or it will start to look like the white elephant in the room.

EDF is the only nuclear operator with a modicum of credibility still in the running for newbuild, although Charles Hendry and the Financial Times would have you believe some Chinese operators are interested in Horizon. But with the advent of François Hollande, known to be lukewarm on nuclear power, to the French presidency, the enthusiasm of this 85%-French state-owned company for the construction of the most likely new plant at Hinckley point in Somerset is likely to cool.

EDF has already postponed the groundwork preparations for the site until next year while it waits to see what happens. The agreement which David Cameron signed on nuclear power with Nicolas Sarkozy in February is now not worth the paper on which it is written. It didn’t even represent much at the time.

Energy Minister Charles Hendry continues to talk up nuclear power, but he might as well be asking banks to invest in Spain. Two weeks ago he told the Nuclear Institute that RWE and E.ON’s decision to withdraw from Horizon's plans to build new power stations at Wylfa and Oldbury was “very disappointing", but he still hoped that the Energy Bill's proposed Contracts for Difference and other electricity market reforms would give investors the certainty they need to invest in new nuclear power.

You can understand why he wants to keep the Government’s options open. But it's a wise gambler who knows when to fold. The Government should instead put its limited resources in the service of solutions that have a much higher probability of working.

These resources include £13 million of DECC's budget currently spent on promoting nuclear power.

But, you say, what of the need to keep the lights on? There's more than one way to fit a lightbulb. Last year's White Paper's impact assessment argued that wind power, being easier to start up, would be turned off by system operators, in periods when it could generate and when demand is low, in preference to nuclear, because the latter is much more expensive to start up after shutdown.

This automatically penalises wind power and favours nuclear. Nuclear is seen as baseload, whereas wind, because of its intermittency, is not.

In the intervening time since the publication of the White Paper, more gas-powered generation has been consented. Because it can both supply baseload and is easy to start up and turn off, this gas-fired capacity negates the need for new nuclear power.

It also means that offshore wind power, tidal power (Peter Hain's new version of the Severn barrage that will be financed by private investment and produce as much as for nuclear power stations), as well as sustainable biomass, which includes anaerobic digestion, can be favoured over gas by system operators at times of low demand.

It also turns out that it is cheaper to strengthen the UK’s electricity grid connections with Europe (and this is being done anyway), widening the range of renewable sources of power, and to expand the facilities for balancing supplies with demand, than it is to build new nuclear plant. This will ensure that the lights stay on even if there is a flat calm over the UK for some time during the winter.

The Government can therefore support the provision of the maximum amount of renewable energy while maintaining a strategic reserve of gas-fired plants, together with a strategic reserve of fuels to power them.

And with the abandonment of nuclear newbuild, more capital and investment will be available for renewable energy, which will in many cases be quicker to build.

Cheaper electricity

A change in policy would also make future electricity costs lower for consumers.

This is because the Feed-In Tariff Contract for Difference policy is currently designed to benefit nuclear power the most, at a cost to consumers: the reduction in the cost of capital using this mechanism is, according to the EMR White Paper, 1.5% for nuclear, compared to 0.5%-0.8% for offshore wind; 0.5% for biomass; 0.4% for coal with CCS; and 0%-0.3% for onshore wind.

The proposed carbon price floor also benefits nuclear power far more than other technologies. The Treasury Secretary, Justine Greening MP, has admitted that the benefits to the existing nuclear sector are likely to be "an average of £50 million per annum to 2030 due to higher wholesale electricity prices".

WWF and Greenpeace together have calculated that the benefit could be much higher: up to £3.43 billion between 2013 and 2026, i.e., £264 million per year.

Therefore, if both of these policies were modified or abandoned in the new Energy Bill, electricity prices in the future would be lower.

Next week’s Bill will contain these policies, but it is only a draft. It doesn’t have to remain this way.

The Green Deal will fail under current arrangements

The Green Deal, flagship of the Government's Energy Bill and intended to help the housing sector contribute to cutting UK carbon emissions by 80% by 2050, is likely to be underfinanced and will fail by not attracting enough support from residents.

That was the message from MPs as the House of Commons debated the Energy Bill again on Wednesday, before it moves back for the final time to the Lords.

But they were unable to obtain any guarantees from Energy Minster Charles Hendry, of the value or interest charged on loans to residents or the degree of support that may come from the Green Investment Bank, factors that will have a massive effect on the degree of take-up of the scheme.

The green deal is the “pay as you save” scheme for retrofitting energy efficiency measures to every one of the 28m homes in the country.

A new amendment was passed to force the Secretary of State submit proposals on the ways in which the Green Investment Bank could maximise its take-up and to enable the consumer to compare recommendations and estimated costs and savings.

This is in effect limited by the 'golden rule' that the cumulative cost of the rate of interest and the cost of the installation should not exceed the amount that people are currently paying on their energy bills.

The percentage game

It's the interest rate of the loan repayments that is one of the crucial factors.

The Great British Refurb campaign's survey of about 2,000 people found that whereas 56% saw the green deal as attractive, only 7% said that they would be prepared to take it up if a 6% interest rate applied; if it were set at 2% per annum, they would be “very” or “fairly” likely to take it up.

MPs said they wanted the scheme to have a single interest rate in order to provide clarity, fairness, stimulate mass demand and, crucially, force green deal providers to "compete for customers on the cost and quality of the energy efficiency measures and installation, rather than on the headline interest rate of the finance".

Green MP Caroline Lucas (this week voted MP of the Year in the Scottish Widows & Dods Women in Public Life Awards) wanted the Green Investment Bank to be able to ensure a common and low interest rate - below 2% if possible - pointing out that a (very) different scheme in Germany offers publicly subsidised interest rates of 2.65% and has achieved 100,000 residential retrofits in a year - and the Government must achieve 145,000 every month to have a hope of meeting the required targets.

But Barker said the legislation will not place restrictions on the level of interest charged, instead relying on the market to decide.

Nor could he guarantee that the Green Investment Bank could support the interest rate, although its priorities are to address market failure.

Barker said that it is up to the market to set the interest rate, however, although there will be some protection for the fuel poor, and in order to prevent subsequent owners of a property being penalised for the fact that the previous residents were not considered credit-worthy.

The Government has yet to undertake consultation on the secondary legislation that will bring in the regulations, and this is what will determine the degree of willingness of financial backers to climb on board.

Barker added that the Government's own consumer research showed that the biggest factor in their taking up the green deal would be "a desire to make their home nicer".

The Energy Company Obligation and fuel poverty

The Energy Company Obligation (ECO) for energy companies is supposed to target the needs of vulnerable consumers, and the green deal is supposed to tackle the issue of fuel poverty, but with an unprecedented 1.9 million people in arrears with their energy bills in this country and 5.5 million living in fuel poverty - both numbers rising by the day - it is unclear whether any financier is going to want to touch them.

Barker admitted as much, saying "I cannot give a universal commitment" that they will all have access to the deal.

Barker tried to provide reassurance by saying "Many of the families and individuals [in arrears or fuel poverty] will be captured by community roll-out and street-by-street roll-out of energy efficiency improvement schemes."

ECO is expected to offer insulation and home improvements to whole streets, regardless of income, to ensure improvements are made at scale - which is far more cost-effective than house-to-house, especially where external insulation is required.

But the crucial question is how much finance it will have available.

Lucas certainly doesn't believe that as things stand there will be enough cash available to make the green deal work.

"Yes, we have the ECO £1 - 2bn," she said, "but this is a small proportion of what will be required".

In fact, as MP Barry Gardiner pointed out, the Committee on Climate Change estimates that up to £17 billion of support will be required through the ECO to insulate 2.3 million solid walls alone by 2022.

Similarly, he said "we cannot keep pushing up the ECO" because of its impact on every energy bill payer.

In addition, it is unclear whether the Treasury levy cap on DECC's spending will cover the ECO, and limit the support it can give to tackle fuel poverty still further. The two departments are still locked in negotiations over that one.

All Barker would say at this point is that DECC will publish in the autumn its expectations of how DECC policies, taken together, will impact on consumers through to 2020.

Regulation

The green deal, as MP Andrea Leadsom pointed out is, essentially, a financial services product. As such it is regulated by the Office of Fair Trading, which will be expected to ensure that any mis-selling is stamped out at the outset and full compensation is paid to any victims.

However, MPs raised concerns over whether the OFT will have sufficient resources to undertake this extra work, which could be considerable.

Market research has shown that customers would welcome and are therefore more likely to trust the involvement of local authorities, community groups and third sector organisations when thinking about entering into a green deal.

The legislation will allow for this and contain "a clear enforceable framework within the green deal code of practice" to ensure impartiality of advice and prohibit high-pressure sales tactics, as used infamously by energy companies recently.

Greg Barker said, "one of the most exciting things about the green deal is its potential to give rise to new third sector involvement in delivering energy efficiency services."

DECC is now setting up a new workshop to look specifically at how the provisions can best work with older buildings and for service family accommodation, particularly older historic buildings.

Contrary to MPs demands that it makes more sense for repayments of the loans to come from a gas bill (used more for heating than electricity), Barker said it will not be possible to specify whether the instalments will be paid via the customer's electricity bill or gas bill, as this would double the cost of administering the scheme.

He also said that liability for green deal payments should sit on the balance sheet not of energy companies, but of the green deal provider, such as B & Q, Marks & Spencer or John Lewis.

The amendments include one, brought by Luciana Berger, Lab/Co-op MP for Wavertree, Liverpool, to clarify and encourage green deal installation apprenticeships to create the necessary skilled workforce.

However, there was no discussion of standards of insulation and energy efficiency that will be required. That, too, will have to wait until the secondary legislation.

With the implementation date 12 months away for the green deal, there is still plenty of work to do before stakeholders will even be able to estimate how effective it may turn out to be, but there is certainly much concern that it will not be as attractive as it needs to be.