Government publishes Energy Bill

Government has today published the long awaited Energy Bill, which sets out reforms to the electricity market.

Electricity Market Reform aims to set up an effective and efficient market based system to attract investment into electricity generation within a strong government regulatory framework. As ever, a simple principle of a long term contract for generators becomes a highly complex undertaking in practice. To take one example, there are effectively four bodies operating/regulating the system: Government; National Grid; Ofgem and the Counterparty.

The stakes are high - any mistakes in the government framework could have a major impact on investment and compromise the objectives of secure, low carbon and affordable energy.

Whilst the process of contracts for difference is now spelt out with some clarity, key decisions such as the strike price for different technologies will emerge over the next year.

Below is a summary of the key points.

Jonathan Johns from Climate Change Matters and a director of Regen has also provided us with a short commentary - follow the link on the right hand side.

DECC's announcement can be found HERE. And the full Energy Bill is available HERE.

Key points include:

Contracts for Difference
Contracts for Difference (CfDs) will be available for low-carbon electricity generators, including renewables, nuclear and CCS. The Heads of Terms for the CfD will form the basis for the final contract terms. It's essential that industry engage with government to feed in any concerns about the proposed contract. The final CfD contract is expected to be published in July 2013.

Strike prices
Government will consult on the first set of CfD strike prices in mid-2013 and expects to be able to announce the 2013-2018 prices by the end of 2013 within the EMR delivery plan. This will give developers up to a year of visibility of prices ahead of them coming into force in mid-2014.

The Government intends to move to a competitive price discovery process for all low-carbon technologies as soon as practicable, which may be as early as 2017 for some technologies. This means that there is continued pressure on industry to focus on cost reduction, and raises the question as to how we support new technologies and innovation to come down the price curve in the future.

A Government backed counterparty
This is to be welcomed. Government also intends to develop a two stage process in which projects are able to apply for a CfD once they have met certain criteria, such as planning permission and a grid connection agreement, and then a number of other critera post CfD-award in order to retain the contract.

System Operator
The National Grid is to be appointed to deliver the Electricity Market Reforms, including CfDs, administer the Capacity Market and provide analysis and evidence to Government.

A Final Investment Decision (FID) Enabling process
This will enable investment in low-carbon projects to come forward before the full implementation of EMR in 2014. This may be of interest to those seeking early certainty and a bespoke arrangement negotiated direct with government.

Transition to EMR
Transitional measures will allow renewable investors to choose between the new system and the existing Renewables Obligation which will remain stable up to 2017.

Competition and liquidity
Additional powers will be made available to Government if necessary to promote greater competition and liquidity in the wholesale market. These will include powers to make modifications to electricity supply licences for the purpose of reducing barriers to entry associated with the power purchase agreement market. However, there is no commitment, as yet, to intervene in the PPA market because the government expects EMR to lead to more competition.

Key dates to note:

July 2013 Draft delivery plan, including draft renewable CFD strike prices, published for consultation
CfD final contract published
December 2013 2014-2018 delivery plan, including final renewable CfD strike prices, published
Energy Bill receives Royal Assent - subject to Parliamentary time and the will of Parliament
Mid 2014 CfDs issued
March 2017 Renewables Obligation closes
2017 Possible introduction of competitive allocation processes
2020s

Possible introduction of technology-neutral competition

Transition towards a market that does not require intervention, including in the form of CfDs

We will continue to engage in EMR as the detail emerges. But I would encourage all those with an interest in the future of renewable energy to feed in your views on the draft CfD to government as well as evidence on energy costs.