Government energy policy announcements

23 November 2012

The government has today announced an agreement on energy policy following the much publicised debate between the Coalition partners. The Energy Bill itself, with further details will be set out next week.

Regen will send Members a brief on the Bill when issued.

Click here to see DECC's announcement

Key issues
The policy dispute has centred on whether to set a target for the level of carbon emissions from electricity in 2030 - a 'decarbonisation' target. This would send a clear message to investors that gas is a transitional technology and that renewables, nuclear and gas with carbon capture and storage are the technologies of the future.

The compromise agreement announced today is that the 2030 decarbonisation target will be set in 2016, when the overall carbon budget for 2030 from all sectors of the economy will be agreed (effectively delaying decisions until after the next election). The Government has also made clear it sees a key long term role for gas, and a Gas Generation Strategy will be published alongside the Chancellor's Autumn Statement.

The announcement also covers many other key issues including the structure of the Contracts for Difference regime and the 'subsidy' levels for renewables to 2020. Indeed, in the period up to 2020 the announcements look like an important 'win' for DECC with Treasury which the renewable energy sector should welcome.

But energy is a long term investment. By 'kicking the can down the road' on key long term policy decisions for low carbon technologies whilst providing "certainty to gas investors" the risk is investors in renewable energy delay investment decisions - or make them elsewhere in the world. The renewables sector needs to now focus on working with DECC to build the case for a clear 2030 policy framework for renewables.

Government owned counterparty for long term Contracts for Difference
The Energy Bill will set out the details of the new Contracts for Difference mechanism to provide generators with a long term contract to purchase energy from low carbon electricity generation. The obvious assumption was that government would be the counterparty to these contracts - however the draft proposals suggested a market solution. Following extensive criticism the government has announced "The creation of a Government-owned company to act as a single counterparty to give investors' confidence". This is to be welcomed.

It will be important to see the detail of Contracts for Difference in the Energy Bill. In particular there are concerns about how independent generators will cope in the new regime.

Subsidy
The amount of market support to be available for low carbon electricity investment (under the Levy Control Framework) up to 2020 has also been agreed. This will be set at £7.6 billion (real 2012 prices) in 2020. On the Today Programme this morning Ed Davey stated that the cost on bills is currently around £20 and will rise to "under £100" by 2020. There has been no statement on how much of this is allocated to renewables, nuclear and CCS, however, given it seems unlikely any nuclear or CCS will be running much before 2020 this looks like a positive 'budget' settlement for renewables.

Debate on costs
The debate in the press is once again being framed as expensive green energy as against cheap fossil fuels. Ed Davey made a valiant effort on Today to correct the figures and point out the risks of relying on gas. DECC also has an interesting 'infographic' on the impacts of 2020 policies on bills.

Regen set out some of the facts in a recent article.

We will continue to play our role - but I would encourage all those with an interest in the future of renewable energy to take what opportunities you have to get across the facts on energy costs.