Last month’s draft Energy Bill is the first step towards achieving the UK’s low-carbon energy ambitions
On 22 May, the Secretary of State for Energy and Climate Change announced the publication of a draft Energy Bill, the intention of which is to establish a legislative regime for delivering secure, affordable and low carbon energy.
This package of reforms is probably the most significant development in the UK’s energy market since electricity privatisation in 1989. The bill aims to put in place measures to attract the £110bn investment needed to replace current generating capacity to meet the 2020 renewables commitment, upgrade the grid by 2020 and cope with a rising demand for electricity.
Arguably the most hotly anticipated package relates to the proposed electricity market reforms. This provided more detail around contracts for difference (CfDs); investment instruments intended to head off any hiatus in investment; the capacity mechanism designed to ensure sufficient generation capacity; conflict of interest and contingency arrangements to ensure that the institution that will deliver the schemes is fit for purpose; proposals for managing the transition out of the renewables obligation commitment following introduction of the new CfD regime; and the further development of the emissions performance standard, which regulates the amount of CO2 that fossil-fuelled power stations are allowed to emit.
There was also a strategy and policy statement to clarify the roles and responsibilities of Government and the regulator, the Gas and Electricity Markets Authority, information as to placing the Office for Nuclear Responsibility on a separate statutory footing from the Health and Safety Executive for regulating the nuclear sector and technical proposals on the regime governing the transmission of offshore power.
Last, there was information on Government proposals to tidy up legal rights to facilitate a possible sale of the Government Pipeline and Storage System. This underground pipeline network was developed during World War II to ensure security of oil supply and is still used to transport around 40 per cent of aviation fuel used in UK airports.
So, a lot to take in. And yet, despite running to more than 300 pages, the draft Energy Bill and supporting documentation seems a little underwhelming. The draft bill is to undergo prelegislative scrutiny by the Energy and Climate Change Committee. The evidence collated by the committee is due to be fed back to the Department of Energy and Climate Change to be used in the production of a revised bill in the autumn. So, we will not see the ’real’ Energy Bill until later in the year.
Finally, we have yet to see how the Government intends to deal with some tricky state aid issues. Concerns remain that some of the proposals being made to fund nuclear development amount to an implicit level of government guarantee, without which investors may walk away.
It is clear that while the publication of the draft Energy Bill is another step along the road, much remains to be done to develop, finalise and implement the proposals so investors have the confidence they need to deliver the UK’s low carbon energy future.