A week of major energy policy announcements has culminated in the publication of the long-awaited Energy Bill today. Taken together, they lay the foundations for the more stable and affordable energy policy that the UK has been lacking for a number of years.
For investors, there is unprecedented long-term clarity over how much support will be available for low carbon electricity. The government has set out how much money will be on offer up to 2020. There will always be calls for greater clarity, but this is much further than any other government has gone before.
On the divisive issue of a 2030 decarbonisation target, the government has plotted a constructive way through fierce political cross-fire. It will introduce a power into the Bill to set a flexible target through secondary legislation. Whilst the decision on whether or not to exercise the power will only be taken after the next election, this represents another step towards longer term energy policy.
For industrial consumers, the government aims to contain the impact of green policies on industrial competitiveness by capping the overall level of subsidies for low carbon generators. This is a decisive break from the open cheque book policy of the past decade
Keeping any decarbonisation target flexible will reduce the risk that the UK locks itself into an overly costly energy policy. We simply don’t know today the most-cost effective mix of technologies for tomorrow.
The commitment to exempt the most energy intensive industries from the price impact of decarbonising the UK’s electricity supply shows an ambition to provide a more level playing field for companies whose international competitiveness is being seriously undermined by the UK’s green policies
However, the detail matters and will determine whether a more investor-friendly and affordable policy is delivered in practice. So EEF will be holding the government to account on a number of key issues.
First, we will continue to press for a 2030 decarbonisation target to be established as soon as possible. This will help make the UK an even more attractive place to invest in clean technologies and will provide a clear objective for the major market intervention that the government has embarked on.
Second, there needs to be a clear plan for restoring competition in the market. The government needs to set out and commit to a clear and ambitious timetable for moving to a more competitive approach to low carbon power where the market, rather than politicians, sets prices.
Third, the same long-term vision being brought to energy policy must be given to energy-intensive industries. The government must commit to extending the existing compensation package for climate change policies beyond 2015 and ensure that the exemption from the cost of decarbonising electricity announced today provides adequate protection for all industries that need it.
Finally, looking ahead to the gas strategy due out next week, the government has another opportunity to demonstrate that it is committed to a balanced energy policy.
Further switching from coal to gas can deliver substantial emission cuts. Whilst developing the nation’s shale gas resources could enhance our energy security and help contain energy prices rises.
So the strategy must send a clear signal that gas still has a major role to play in our energy mix in the decades ahead.