The Energy Bill, which intends to encourage £110bn of investment in low carbon generation this decade, has been unveiled by Energy Minister Ed Davey.
Crucially, the government says that big energy intensive companies will be exempt from fitting the bill for the switch to investing in low carbon energy sources.
The long-awaited Bill will offer energy generators long term contracts guaranteeing prices for electricity from new power plants. These will be paid for by levies on electricity bills.
The Bill is the foundation for more stable energy pricing and is welcome relief to thousands of companies who have sought clarity on the energy market for months.
To cover the cost of a switch to green energy, by raising the energy levy to £7.6bn from £3bn, government estimates show that these and other subsidies for low carbon power will add at least £100 a year to household bills by 2020.
Industry and consumer groups have warned that the additional costs could plunge more households into ‘fuel poverty’, put some companies out of business and force industries to relocate overseas.
Mr Davey said that energy efficiency would be “front and centre” of government policy, adding that the proposals would amount to the “biggest transformation of Britain’s electricity market” to date.
The Energy Bill aims to move Britain’s energy production from a dependence on fossil fuels to a more diverse mix of energy sources, such as wind, nuclear and biomass.
Energy intensive industries such as steel making will be shielded from subsidising new nuclear power plants and wind farms, under government plans that will see other businesses and consumers paying billions of pounds more for electricity.
“Decarbonisation should not mean deindustrialisation”, Mr Davey said, heeding the warnings of business groups like EEF and the CBI. “The transition to the low carbon economy will depend on products made by energy intensive industries – a wind turbine for example, needing steel, cement and high-tech textiles. This exemption will ensure the UK retains the industrial capacity to support a low carbon economy.”
Without the exemption, the government feared big companies would be forced to cut jobs and relocate abroad. Rio Tinto Alcan closed its Lynemouth plant last year and relocated capacity overseas, citing uncompetitive energy prices.
Manufacturers’ organisation EEF welcomed today’s decision to not penalise high-energy industries, but it said the government must ensure that the transition to the low carbon economy is achieved at the best cost for all consumers, it said.
Chief executive Terry Scuoler said EEF has long called on government to ensure the competitiveness of energy intensive industries. “Energy intensive industries can make a major contribution to a low carbon economy but they will only do it here if they have access to competitive energy.”
“But this is not just about energy intensive industries. The government must ensure that the Energy Bill takes the most cost effective approach possible so that no customer pays over the odds for low carbon energy.”
Tony Ward, power & utilities partner at Ernst & Young, said that further details of the bill still need to be clarified. “It may not be until autumn 2013 before this Bill reaches the statute book, so maintaining confidence in its safe passage will be vital,” he said.
“It is inevitable that in the coming days questions will be raised about specific elements, for example exactly how the CfD [Contracts for Difference] counter-party will operate, whether the capacity market will actually be deployed, and if so whether it will simply reward existing assets or incentivise new-build?
Keith Parker, chief executive of the Nuclear Industry Association, said the Bill provides much needed investment certainty. “A major nuclear new build programme will lead to substantial industrial and employment benefits – including considerable opportunities for the UK nuclear supply chain and a boost for UK manufacturing and construction,” he said.
CBI director-general John Cridland pointed out the the boost the Bill will give to investor certainty. “It will be crucial for investors to see the momentum kept up in Parliament so that the Bill can get onto the statute books as quickly as possible,” he said.
“The current policy landscape is too complex, so we will look forward to seeing how today’s electricity demand reduction proposals can move us towards a simpler, more strategic approach,” he added.
Click on the link for Roger Salomone’s blog, ‘Energy policy moving in the right direction‘