Government reveals plans to reform UK’s energy landscape

The government has announced its plans to reform the UK’s energy landscape in what has been billed as the ‘biggest shake-up of the market since privatisation’.

At the heart of yesterday’s white paper is a drive to encourage investment in new low-carbon energy production; a need to bolster the UK’s creaking energy infrastructure; and an attempt to stabilise prices for consumers with a more secure energy future.

To achieve this, the Department of Energy and Climate Change (DECC) has set out four partially overlapping — and, some have argued, overly complex — measures, which take effect in 2013.

‘…some time in the middle of this decade, renewables, and particularly wind, will be producing more electricity than nuclear’

Gordon Edge, RenewableUK

The Carbon Price Floor, first announced in the Budget in 2011, ensures a minimum price for carbon emissions permits for fossil-fuel plants.

At the moment, companies have to buy carbon allowances to cover every tonne of emissions they produce, but depending on market forces this can dip to quite low unit levels. Having a floor price is supposed to prevent this and, in theory, reward those who invest in clean energy.

The introduction of new long-term contracts — contracts for difference (CfDs) — guarantees low-carbon energy generators a fixed, higher-than-market-value price for their electricity.

Meanwhile, an emissions performance standard (EPS) has been set at 450g of CO2 per kilowatt hour to reinforce the requirement that no new coal-fired power stations are built without carbon capture and storage (CCS) but also to ensure that necessary investment in gas can take place. Finally, a capacity mechanism ensures the future security of electricity supply to ‘keep the lights on’.

Favouritism

The plans are largely seen as favouring new nuclear build, giving more confidence and certainty to the big players such as EDF and RWE npower that have plans for new build at various stages. What is less clear is how other low-carbon industries will fare.

‘The white paper may throw a few crumbs of comfort to the renewables industry, but in reality it is all about getting new nuclear power stations built,’ said Catherine Mitchell, professor of energy policy at Exeter University.

At a roundtable event of green investors hosted today by Triodos Renewables, Gordon Edge, policy director at trade body RenewableUK, said the announcement was a mixed bag for the industry.

‘I think yesterday’s white paper underlines the government’s commitment to the EU target of 15 per cent of energy overall and 30 per cent of electricity from renewable [of total energy/electricity mix].

‘That means that, some time in the middle of this decade, renewables, and particularly wind, will be producing more electricity than nuclear and will continue to do so for the foreseeable future — so why all this focus on nuclear? We’re the ones who will actually be giving you more electricity, so why are we being sidelined? But it’s not a terrible package overall; we’ve got a half result.’

He told The Engineer that the key concern for the renewables industry with regards to CfDs was how the contracts would actually be awarded through the proposed auction system.

‘What that does is deeply inhibit investment in the development phase, because if you have a project coming out of development and you don’t know if it’s going to win the competition to get a contract and at what price, then you think twice about investing in that project,’ said Edge.

Renewables output

In the midst of all the furore surrounding the white paper, the panel of investors noted a report released yesterday by REN 21 showing that renewable energy supplied an estimated 16 per cent of total energy usage and 20 per cent of electricity generated globally in 2010 — a jump of 32 per cent from 2009.  

‘The UK has come so late to the party and I really hope we’re at a point now where we are going to play catch-up very rapidly, because as an investor in large-quoted companies we don’t see many opportunities in the UK generally,’ said Clare Brook, fund manger at WHEB Asset Management.