A White Paper published today on electricity market reform has revealed government intentions for the move to a low carbon economy including measures to attract investment and safeguard key industries
Lack of certainty over the practical implications of UK energy policy have been causing unrest among manufacturers in recent months with many claiming that the current direction of carbon taxation and energy pricing will endanger the ability of the UK to rebalance economically.
Earlier this week government revealed plans to adapt unpopular CRC regulations in order to make it clearer who will be affected and today’s White Paper is intended to communicate the roadmap for changes to energy sourcing and pricing.
Strategy has identified new nuclear as a major new source of energy for the UK and procurement for nuclear new build is anticipated to commence in earnest toward the end of this year following a pause for review of industry standards in the wake of Fukishima.
Government has said that it will incentivise the use of low carbon energy sources through long term contracts for feed-in tariffs which CBI has welcomed as a sensible measure. However, other measures in the report have been viewed with greater scepticism and impatience by business advocates.
The intentions laid out in today’s report are founded on the principles of the recently announced Green Deal. This scheme, touted as the first of its kind in the world aims to cut future energy bills in real terms.
Secretary of State for Energy and Climate Change, Chris Huhne, has said that: “This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new plant.”
But CBI and EEF have both indicated they believe the emphatic direction being taken with energy policy is pursuing green leadership at the expense of economic sense and that it will have the counter-intuitive effect of incapacitating industrial growth.
EEF Chief Executive, Terry Scuoler commented: “Industry will welcome moves to contain the cost of supporting renewable energy. However, the transition to a low-carbon economy will not be cheap and is likely to significantly increase energy prices.
“A comprehensive assessment of the impact of the government’s overall approach to decarbonising our energy supply on electricity prices remains essential.” Today’s report is considered insubstantial in relation to industry giving more focus to consumer issues.
In a press release from the department of Energy and Climate change however, government has stated that business as usual is not an option. Electricity demand is set to double, by 2020 yet, at the same time, Britain is committed to fulfilling carbon emission reduction targets far in excess of other nations.
Accepting the impossibility of altering this extreme green leadership policy CBI and EEF have devoted their energies to calls for government to consider the cumulative impact of multiple carbon taxes and environmental regulations on certain industries, such as steel and other energy intensive businesses.
These calls have not been answered by today’s White Paper and so Scuoler continued: “We need a clear picture of the implications of the cumulative cost of climate and energy policy. This will be critical in reassuring manufacturers who are planning to invest in Britain that their competitiveness will not be damaged by allowing electricity prices to get out of line with their major competitors.
“The government must deliver on its commitment to not only provide this information as a matter of urgency. It must also introduce the promised package of compensatory measures for energy intensive sectors in order to safeguard their international competitiveness.“
John Cridland CBI director-general concurred saying: “Everyone wants to make our energy infrastructure more secure and sustainable for the future, but businesses cannot be expected to write a blank cheque. The Government still needs to spell out what it thinks the final bill for all of its electricity market reforms will be.
“Some energy intensive industries are already on a knife edge, and without help to shield them from new measures like the carbon floor price, they could struggle to stay in the UK.”
“The scale of investment required in the UK is unprecedented: £200 Billion by 2020 is equivalent to £8,000 for every household in the country,” said RWE npower CEO, Volker Beckers. “The EMR White Paper shows progress on climate change and security of supply, but we must have more focus on affordability.”
Government has stressed that the publication of today’s White Paper marks only the first step in the specification of electricity market reform and that full legislation will take place after May 2012. This legislation would become statutory in the spring of 2013.
