Nov. 29 (Bloomberg) — U.K. lawmakers began considering
legislation today that will revamp electricity markets, part of
a 110 billion-pound ($176 billion) effort to spur construction
of nuclear, gas and wind power plants.
“The Energy Bill will attract investment to bring about a
once-in-a-generation transformation of our electricity market,
moving from predominantly a fossil-fuel to a diverse low-carbon
generation mix,” Energy Secretary Ed Davey told lawmakers in
Parliament today to introduce the legislation.
Prime Minister David Cameron’s government is seeking to
boost incentives for utilities to maintain stable power supplies
as the nation retires coal- and oil-fired stations responsible
for 14 percent of generation capacity by 2015. Electricite de
France SA and Hitachi Ltd. are weighing investments in new
atomic stations in Britain, one of three western European
nations sticking with the technology after last year’s nuclear
disaster in Japan.
“We can’t claim that the Energy Bill is transformative,
and there are still many impediments to investment at scale in
offshore wind and even gas,” said James Cameron, chairman at
Climate Change Capital Ltd. “But at last we have a framework
with long-term commitments. Now we need to begin investing in
the infrastructure of a modern resource-efficient economy where
the real prize is energy at very low operating cost.”
The bill includes contracts guaranteeing power prices for
companies that build new plants. Davey announced plans to exempt
energy-intensive industries from costs arising from the
measures.
Liberal Democrat
Publication of the bill caps weeks of negotiations between
Cameron’s Conservatives and Liberal Democrat Davey, fueling
speculation the proposals were causing a rift within government.
Cameron’s party has emphasized concerns about the costs of green
measures on businesses and consumers, favoring gas, while Davey
wants more incentives for renewable energy.
“Two parties who have had their disagreements have come
together with an energy policy,” Davey said, adding that the
government will support exploitation of shale gas and publish a
gas generation strategy with the Dec. 5 autumn statement.
Attention on energy prices has intensified after Centrica
Plc’s British Gas and SSE Plc boosted consumer charges for gas
and power. The British Chambers of Commerce today called on the
bill to limit the impact on businesses already hurt by rises.
DECC said today it’s considering separate measures to pay homes,
industry and business for curbing power use.
Renewables cost the average home about 20 pounds a year
with recent bill rises due to wholesale gas prices, Gaynor
Hartnell, chief executive officer of the Renewable Energy
Association, told BBC News today.
Costs Down
“We all consume electricity and should be paying for the
costs of it,” she said. “I don’t think we can assume that for
evermore energy will be cheap,” she said, adding that the costs
of renewables are coming down.
Davey said today the net effect of government policies on
bills is “downwards”. Last week, he said the changes will
triple the cost of renewable energy charged to the bills of
consumers to 7.6 billion pounds in 2020. That would account for
about 7 percent, or 95 pounds, of home bills in that year. The
plans enable Britain to hit clean energy targets and support
250,000 jobs, he said.
Davey dropped efforts to add a 2030 target for cutting
emissions in the power industry, criticized by environmental
groups WWF and Greenpeace. Caroline Flint, Shadow Energy and
Climate Change Secretary for the opposition Labour Party, said
today in Parliament she would work to put a decarbonization
target “on the face of the bill.”
Clean Energy
First proposed by government in March 2010, the changes
were designed to secure clean energy at a lower cost by reducing
the capital costs for the projects.
Today’s proposals may have had the opposite effect,
according to Bloomberg New Energy Finance. The London-based
research group estimates that large-scale, U.K. project funding
declined 53 percent to $5.04 billion last year from $10.65
billion in 2009.
The proposals include setting up a so-called capacity
market that would ensure demand is met with payments to
producers for back-up supplies. The government is increasingly
concerned about the security of power supplies after the
regulator Ofgem warned that capacity will tighten, raising the
risk of shortfalls from 2015.
Capacity Mechanism
“The most important thing is what the capacity mechanism
will be, and we have had nothing on this so far,” Lakis
Athanasiou, an independent equity analyst, said by e-mail.
“This complacency runs the risk of causing power shortages in
the second half of the decade.”
The proposal will also support Britain’s renewal of its
nuclear fleet with long-term contracts guaranteeing a price for
power, or strike price, also available to renewables such as
offshore wind. The bill won’t include the strike prices, which
will be set late next year.
The plans for the so-called contracts for difference
illustrate the government’s commitment to a “much-needed
nuclear revival,” said George Borovas, head of nuclear projects
at law firm Pillsbury Winthrop Shaw Pittman LLP. EDF is expected
to decide on new reactors in England by the end of this year.
The government plans to exempt energy intensive industries
such as steel and cement from costs added by these contracts,
Davey will say today. The costs will be levied on suppliers who
pass them to consumers. The government will consult on the
exemption, which will need European approval, next year.
“Decarbonization should not mean deindustrialization,”
Davey will say. “There would be no advantage, both for the U.K.
economy and for global emissions reductions, in simply forcing
U.K. businesses to relocate to other countries.”
The government aims for the bill to clear its final
legislative step known as Royal Assent in 2013, with the first
low-carbon projects supported under the legislation beginning in
the following year.
To contact the reporter responsible for this story:
Sally Bakewell in London at
Sbakewell1@bloomberg.net
To contact the editor responsible for this story:
Reed Landberg at
landberg@bloomberg.net
