U.K. Introduces 'Radical' Energy Bill

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) -- The U.K.'s coalition government has formerly introduced its 'radical' Energy Bill which it claims will boost renewable energy investment, spur on a new wave of nuclear projects and combat a looming energy shortage.

The cost for transforming the country's energy mix will top €135 billion ($176 billion) by 2020, with taxpayers expected to pay for the transition to more green energy through higher electricity bills. Energy companies are the big winners in the new Bill. They will escape much of the extra costs since the government wants to encourage them to invest in a lot more renewable energy projects.

The U.K. is facing an energy crisis with almost a fifth of its generating capacity expected to be shut down in the coming decade. This will comprise mainly of old nuclear power plants and 'dirty' coal-fired power stations. The country's energy regulator, Ofgem, has warned of the possibility of power cuts as early as 2015 unless new capacity is brought online quickly.

"The Energy Bill will attract investment to bring about a once in a generation transformation of our electricity market, moving from predominantly a fossil-fuel to a diverse low-carbon generation mix," explained Edward Davey, U.K. Energy and Climate Change Secretary.

"The Bill will support the construction of a diverse mix of renewables, new nuclear, gas and CCS (carbon capture and storage), protecting our economy from energy shortfalls and significantly decarbonising our electricity supply by the 2030s as part of global efforts to tackle climate change."

Davey admitted that the task ahead is considerable.

"The challenge is big. Over the next decade, the investment needed to upgrade our energy infrastructure is almost half of the infrastructure investment needed in the U.K.. This is far more than is taking place in transport, in telecoms, or in water, and dwarfs the investment that was needed for the Olympics or Crossrail."

The Bill outlines reforms to the electricity market designed to attract what the government termed 'record investment'. These include:

Contracts for Difference (CfDs) will stabilise revenues for investors in low-carbon electricity generation projects helping developers secure the large upfront capital costs for low carbon infrastructure while protecting consumers from rising energy bills.

A new Government owned company will act as a single counterparty to the CfDs with eligible generators. We also intend to develop a two stage process in which projects are able to apply for a CfD once they have cleared meaningful hurdles such as planning permission and a grid connection agreement, and then a small number of hurdles post CfD-award in order to retain the contract.

Government is taking powers to introduce a Capacity Market, allowing for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, if needed, to help ensure the lights stay on even at times of peak demand. A Capacity Market will provide an insurance policy against future supply shortages.

National Grid the System Operator 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 will enable investment in low-carbon projects to come forward for early projects, guarding against delays to investment in our energy infrastructure.

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

An Emissions Performance Standard (EPS) will curb the most polluting fossil fuel power stations, ensuring that any new coal fired power stations will have to have CCS fitted to be able to operate within limit.

Government has already legislated to establish a Carbon Price Floor from April 2013, to underpin the move to a low-carbon energy future.

Government will also take powers to set a decarbonisation range for the power sector for 2030, a decision to exercise this power will be taken once the Climate Change Committee has provided advice in 2016 on the fifth Carbon Budget, which covers the corresponding period (2028 -- 2033).

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