Government plans to 'keep the lights on’ and encourage investment in greener forms of energy at the lowest cost possible to consumers are in jeopardy because of Treasury meddling, according to an influential committee of MPs.
The Energy and Climate Change Select Committee
today launched a damning report on the Government’s draft Energy Bill
, saying it was putting badly needed investment
at risk and could lead to less competition in the electricity market
at the same time as leaving consumers out of pocket.
The Energy Bill is set to create the biggest shake-up of the electricity system since privatisation and is seen as critical to attracting new investment
and securing a varied combination of electricity sources, including renewables
, gas and new nuclear.
Not "fit for purpose"
But the MPs’ report concludes that the bill is not "fit for purpose" because the Treasury is refusing to back a new system of contracts to encourage investment in green energy.
And the Select Committee is concerned that the new contract system will squeeze out smaller renewable energy companies in favour of the 'Big Six’ energy companies.
"The Government is in danger of botching its plans to boost clean energy, because the Treasury is refusing to back new contracts to deliver investment in nuclear, wind, wave and carbon capture and storage," said Tim Yeo MP and chair of the Energy and Climate Change Select Committee.
Contracts for Difference
The Energy Bill sets a new framework for decarbonising the UK’s ageing energy infrastructure, which the Government estimates will cost £110 billion to replace. Central to the bill is a new system of long-term contracts called Contracts for Difference (CfDs), which intend to provide long-term revenue certainty to investors in low carbon generation, including renewables, nuclear and carbon capture and storage. The Government believes CfDs offer the best value for money and price stability for consumers.
But the Select Committee says the CfDs have been rendered too complex and unworkable because the Treasury has intervened to stop the Government guaranteeing them, a move that would have lowered the cost of capital for investors.
Treasury spending cap
The Select Committee also finds fault with the spending cap set by the Treasury, which limits the green levies that can been passed onto consumers. It warns this is already having an impact on investment decisions and could paradoxically push up energy costs for consumers.
"Nobody wants to see a blank cheque written out for green energy, but the Government must provide investors with more certainty about exactly how much money will be available," said Yeo.
The Committee’s report has been welcomed by the business community and green groups alike today.
CBI director-general John Cridland, who has become increasingly frustrated with the political infighting and Government delays on green policy
, said: "Major energy investments are hanging on critical decisions the Government must make in the coming weeks and months. If they are to plan long-term investments, businesses need to know what the electricity market will look like in years to come.
"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 (RO) support rates cannot wait any longer."
, Ministers were forced to delay a crucial decision on RO, the existing renewable energy subsidy system, amid reports the Treasury was calling for deep cuts to onshore wind energy subsidies.
David Nussbaum, chief executive of WWF-UK, said the the Treasury "seemed intent on undermining the policy certainty investors needed" and questioned why the Chancellor of Exchequer and his department had refused to give evidence to the Select Committee. "The Committee could hardly be more damning in their criticism that the Treasury is making UK energy policy unworkable," he said.
And Friends of the Earth’s head of Campaigns Andrew Pendleton said: "This report really hits the nail on the head – the Treasury’s block on reforms to the UK’s electricity system threatens to keep the nation hooked on increasingly expensive fossil fuels for decades."
Competition in the market
The Select Committee report also criticises the Energy Bill for not focusing enough on energy efficiency and for discouraging competition in the electricity market, warning that the new entrants and independent suppliers could lose out.
"Community owned energy projects and small independent generators are in danger under the current plans of being squeezed out," said Yeo.
, Energy Secretary Ed Davey issued a "call for evidence’ to look into claims by some independent energy suppliers that they are already being denied contracts to sell their electricity to buyers under the CfDs, which would come in in 2017. However, he insisted the new incentive scheme was "really good news for renewables" and that the Government wanted the independent renewable sector to play its part in the new electricity market.
Today Davey welcomed the Committee’s report, in spite of the criticism it leveled at the Government, saying: "We are determined to use the pre-legislative scrutiny period to develop a robust and effective Bill with the interests of both consumers and investors at the heart. The Committee’s input will be extremely valuable as we do this."
The Committee saie the Government must come up with a stronger contract design before the full Energy Bill is expected to be introduced to Parliament in the autumn.
"The Government has a lot of work to do over the summer to make sure that the Bill is fit for purpose in the autumn and is not subject to any further delays," said Yeo.
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