By James Murray, Source: BusinessGreen

Ed Davey has today published the government’s long-awaited Energy Bill, hailing that landmark legislation as “good for the British economy, good for consumers, and good for the planet”.

Speaking in the House of Commons, the Energy and Climate Change Secretary said the Bill would enable a “once-in-a-generation transformation of the energy landscape to bring on massive private-sector investment which will boost the economy, create jobs, and power Britain towards a prosperous low-carbon future”.

The Bill, which has been widely trailed, confirmed a wide-ranging package of reforms that will incentivise clean energy investment through a new contract for difference mechanism, effectively ban new coal-fired power plants built without carbon capture and storage, introduce a capacity market from 2014 to drive investment in back up power plants, establish a new independent Office for Nuclear Regulation, and strengthen Ofgem’s ability to force energy companies to move customers onto more competitive tariffs.

It also features the deal between the Treasury and Department of Energy and Climate Change that will see the final decision on whether to impose a decarbonisation target on the power sector until after the next election.

In addition, Davey stressed the Bill will introduce a so-called Final Investment Decision (FID) Enabling process, which will allow the Secretary of State to deliver the early introduction of CfDs for “shovel-ready” clean energy projects in an attempt to head off a feared investment hiatus.

The powers raise the prospect of a raft of new clean energy projects taking significant steps forward within the next few months, led by EDF’s proposed Hinkley Point nuclear power plant, negotiations over financial support for which are expected to be finalised by the end of the year enabling the company to make a decision on whether to continue with the project.

“These reforms will maintain Britain’s energy security while providing a huge opportunity for jobs and growth,” he added. “Competition for long-term contracts will drive innovation, raise productivity, and give UK industries a strong platform from which to compete internationally.”

Alongside the Bill, the government surprised industry with the launch of a new consultation on proposals to introduce new incentives for investment in corporate energy efficiency measures and announced it will launch a separate consultation in the New Year to assess how to protect energy intensive companies from any increase in green energy costs.

Davey also attempted to head off media accusations CfDs, which will be backed by a £7.2bn levy on energy bills by 2020, will lead to crippling increases in domestic energy bills.

Modelling from the Department of Energy and Climate Change (DECC) has shown average household electricity bills will rise by just under £100 as a result of the measures, but overall average bills should fall by seven per cent or £94 by the end of the decade when accompanying energy efficiency measures are taken into account.

“If you look ahead to energy bills in 2020, Mr Speaker, energy efficiency savings are set to outweigh – more than outweigh- the cost of supporting low-carbon electricity generation,” Davey said. “The net effect of Government policies on energy bills is downwards, not upwards.”

Responding to the statement, Shadow Energy and Climate Change Secretary Caroline Flint promised to work together with the government on aspects of the reforms where Labour is in agreement with the government.

But she also accused Davey of failing to take sufficient action to improve competition in the energy market, failing to deliver a decarbonisation target for the power sector, and overseeing a department that had undermined investor confidence by doing “more than its fair share to get the word omnishambles into the Oxford English Dictionary”.

Significantly, Flint confirmed Labour would continue to push for a “decarbonisation target on the face of the bill” and stressed that she was keen to work with Lib Dem and Conservative MPs, including chair of the Energy and Climate Change Select Committee Tim Yeo, to get the target into the bill.

Talk of a cross-party push for a decarbonisation target raises the prospect of the goal being included in the final version of the Bill if sufficient numbers of Tory and Lib Dem MPs can be convinced to rebel against the government. Lib Dem backbenchers in particular will be under intense pressure to break ranks after their party conference in the autumn approved a motion for a decarbonisation target to be included in the Bill.

The publication of the Bill was broadly welcomed by business groups, who have argued that the certainty provided by CfDs should trigger a surge in investment in renewables and nuclear power plants.

RenewableUK, the Nuclear Industry Association, and the Carbon Capture and Storage Association, issued a joint statement predicting the reforms “would help to unlock billions in investment in low carbon generation, enable the UK to meet its energy security and climate change targets, and create thousands of jobs”.

Meanwhile, Angela Knight, chief executive of Energy UK, hailed the Bill as a “big and positive step forward”, adding that the legislation should mean “the huge investment will now start being made in our energy infrastructure and this will create jobs and help economic recovery”.

And CBI director-general John Cridland praised the government for taking action to protect energy intensive industries from rising energy costs and introducing ambitious new proposals to encourage energy efficiency investment.

However, green NGOs and some industry groups offered a more mixed response to the Bill, praising the support for renewables but condemning the delay to the decarbonisation target and the continued in-fighting within government over the future direction of climate change policy.

“This Energy Bill will lock the nation into increasingly expensive gas, condemn cash-strapped households to rising fuel bills and threatens the nation’s targets for tackling climate change,” warned Friends of the Earth’s executive director Andy Atkins.

“Ministers must nail the lie that green policies are behind soaring fuel bills – it’s the rocketing price of gas that’s overwhelmingly responsible for the misery inflicted on consumers.”

His comments were echoed by campaigners from Greenpeace, who argued the capacity mechanism and the proposed CfDs represented disguised subsidies for gas and nuclear developers.

“The Coalition Agreement pledged not to subsidise new nuclear reactors,” said Greenpeace Nuclear Campaigner Richard George. “Yet the Energy Bill offers massive public subsidies to anyone willing to build new nuclear reactors. Such overt public subsidy may breach European Law and would force cash-strapped households and businesses to pick up the tab for this expensive and risky technology.

“Greenpeace’s QC will be looking closely to see if the Government has broken the rules and put clean, safe renewable energy at an unfair disadvantage.”

Meanwhile, John Walker, National Chairman of the Federation of Small Businesses, voiced concerns about the impact of rising electricity bills on smaller firms.

“While we welcome the much needed certainty the Energy Bill will give to investors to help secure the UK’s energy supply, we are concerned that small firms will be left exposed to ever increasing energy bills,” he said. “The remorseless rise in energy costs is hurting not only individual businesses but also the competitiveness of the UK as a whole.”