Energy reforms to push up costs
Tuesday 22 May 2012
Reforms to the UK's electricity market which aim to drive billions of pounds of investment into new nuclear plants and renewables have been published by the Government.
The radical shake-up will push up costs for consumers but ministers insist the measures will mean bills end up cheaper for households in future decades than leaving the market as it is.
The Government hopes the changes will deliver the £110 billion which needs to be poured into power plants, wind farms and the grid over the next decade to bridge a looming energy gap - more than double the current rate of investment.
The draft Energy Bill will introduce long-term contracts that pay a steady rate of return for energy over the lifetime of new low-carbon generators, to overcome the high capital cost of building nuclear power plants or offshore wind.
But MPs have suggested the system will work for nuclear but not for other low-carbon power such as offshore wind, and warned the plans amount to a subsidy for new reactors, something the Government has pledged not to provide.
The changes come as it emerged electricity giant EDF is in talks with the regulator about extending the life of its existing nuclear power stations to meet short term energy needs.
The Government is depending on nuclear power to form an important part of its efforts to keep the lights on, improve energy security and reduce carbon emissions in the coming decades.
But attempts to create a "nuclear renaissance" faltered recently as RWE, npower and E.ON announced earlier this year they had decided not to go ahead with developing nuclear power plants at Wylfa in North Wales and Oldbury-on-Severn, Gloucestershire.
Measures in the draft Energy Bill also include an emissions performance standard limiting the pollution any plant can give out to stop the building of dirty coal power stations and a system to ensure there is enough power generating capacity.
Energy Secretary Ed Davey said: "Leaving the electricity market as it is would not be in the national interest.
"If we don't secure investment in our energy infrastructure, we could see the lights going out, consumers hit by spiralling energy prices and dangerous climate change.
"These reforms will ensure we can keep the lights on, bills down and the air clean."
Mr Davey said: "The reforms will also be better for the economy, leaving us less vulnerable to rising global energy prices and supporting as many as 250,000 jobs in the energy sector.
"By reforming the market, we can ensure security of supply for the long-term, reduce the volatility of energy bills by reducing our reliance on imported gas and oil, and meet our climate change goals by largely decarbonising the power sector during the 2030s".
But environmental groups said the draft Energy Bill was skewed in favour of nuclear power, at the expense of renewables.
Nick Molho, head of energy policy at WWF-UK, said: "What's needed is for the Government to state a clear ambition for renewable energy in the UK beyond 2020 and to provide financial support mechanisms that are specifically designed for the renewables sector.
"As it is, it looks like the process has been rigged for nuclear."
Relying on the same support mechanism for different low-carbon technologies, which are all at different stages of maturity, will not work, WWF-UK warned.
Mr Molho said: "Renewable energy investors need clear, unequivocal, long-term support from ministers, who must face down sniping from the backbenches and certain sections of the media.
"The Government must also recognise that a one-size-fits-all approach just doesn't work in the energy sector and that we need targeted financial support mechanisms for renewables."
Dr Neil Bentley, CBI deputy director-general, said the changes to the electricity market needed to be made urgently as more than fifth of the UK's generating capacity will be coming off-line before 2020.
"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.
"We are still some way from having a detailed picture of how the electricity market will look in the future, on which the success of these reforms depends. With major investors waiting in the wings, these details are needed as soon as possible," he said.
Labour leader Ed Miliband said he supported nuclear power but stressed that getting a "better deal" for consumers should be a priority for the Energy Bill.
Speaking after a shadow cabinet meeting at the Olympic Park, Mr Miliband said: "I'm in favour of nuclear power and I think it's a really important part of Britain's energy mix, alongside renewable energy and other forms of energy.
"What an Energy Bill should be doing is bring relief to consumers as well and changing the way the energy market works to get a better deal for consumers.
"Of course there needs to be investment in energy, but consumers need to know they're getting a good deal.
"I'm afraid what the Government has done so far is resist our plans to break up the way the big six energy companies work, to try and get prices to be better for consumers, and bring lower tariffs for the elderly.
"Yes, let's get the investment in but let's also get a better deal for consumers."
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