UK energy policy takes center stage
By Jillian Ambrose in London
January 9, 2013 - UK energy policy took center stage in 2012 as the Department of Energy
and Climate Change battled persistent speculation of in-fighting and
departmental dissent to bring forward its landmark Energy Bill into primary
UK Energy Secretary Ed Davey introduced the long-awaited Energy Bill to
parliament November 29, outlining support for low-carbon generation
technology alongside retail reform.
A week later the government announced its
new gas strategy, which aims to support the construction of 26-37 GW of new
gas-fired power stations over the next two decades.
Although Davey has been consistent in assuring all sectors of the UK
energy industry that both gas and low-carbon generation will work together to
create a decarbonized energy sector in the decades to come, the tension
between the renewables and fossil-fuel factions dogged the pre-legislative
scrutiny of the bill and prompted industry concern that investor confidence
would be undermined by the perceived uncertainty within DECC.
At the same time DECC came under renewed pressure to intervene in both
the wholesale and retail energy markets following calls to investigate
alleged marketing rigging in the UK gas wholesale market and rising retail
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Coalition rifts and pre-legislative gloom
DECC submitted the draft energy bill for pre-legislative scrutiny in May
2012 and drew strong criticism for the lack of Treasury involvement in the
contracts-for-difference (CfD) scheme, which underpins the government's plan
to bring forward investment in low-carbon energy generation.
The absence of a legislated decarbonization target for the power sector
-- which would deter gas-fired investment -- received further criticism from
the UK's Committee on Climate Change, amid reports of opposition within the
Deepening rifts within the coalition government were reported in late
October when Conservative junior UK energy minister John Hayes threw the
country's renewable energy industry into turmoil with an open attack on
onshore wind farms a day after apparently wholeheartedly endorsing the sector
at a renewables conference.
His statement in interviews with two Conservative-supporting newspapers
that "enough is enough" for onshore wind farm development prompted Liberal
Democrat Davey to issue a statement insisting there had been no change in the
Although the Treasury agreed to limit the cut in Renewable Obligation
Certificates for onshore wind to 10% -- after press speculation that finance
minister George Osborne had called for a doubling of the subsidy cut to 20%
-- and a role supporting the government-backed counterparty to underpin the
CfD scheme, a decarbonization target did not appear in the Energy Bill
presented to parliament in late November.
UK Energy Bill to support low carbon future
"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," Davey
said in a statement following the bill's submission to Parliament.
Key among the measures unveiled was the confirmation that a new
government-owned company will act as a single counterparty backing CfDs,
which may help alleviate the cost of capital for low carbon projects due to
the strong credit rating of the UK government.
CfDs will be made available to investors in renewables, new nuclear or
CCS. For renewables investors, DECC said the government will consult on the
first set of CfD "strike prices" -- which largely determine the overall level
of support -- in mid-2013 and expects to be able to announce the 2013-2018
prices by the end of the year.
Gas strategy, decarbonization targets
Following the security extended to the low carbon industry, on December
5 DECC announced its new Gas Generation Strategy.
DECC said that up to 26 GW of new gas-fired power generation capacity
could be needed by 2030.
It said most of this would replace older retiring
nuclear, coal and gas plants, "so it is expected there will be a net increase
of around 5 GW."DECC added in its statement, however, that "gas could play a
more extensive role, with higher load factors, should the 4th Carbon Budget
be revised upwards" following advice from the Committee on Climate Change in
The move came under fierce criticism from the low carbon sector, which
believes that without a clear legislated decarbonization target the Treasury
support of the gas industry will leave the door open for a renewed dash for
gas at the expense of the UK's long-term carbon emissions reduction targets.
Tim Yeo, Conservative chairman of the all-party Energy and Climate
Change Committee, announced December 18 that he would push ahead with plans
to amend the UK's Energy Bill to set a 2030 power sector decarbonization
target of 100g of CO2/KWh of electricity produced.
Retail, wholesale market reform
The Energy and Climate Change Select Committee said December 20 that the
UK's "big six" suppliers must make their wholesale energy market activities
more transparent in a bid to increase consumer engagement in the energy
The report called on energy regulator Ofgem to ensure that the big six
vertically integrated energy companies -- British Gas, E.ON UK, EDF Energy,
RWE npower, Scottish Power and SSE -- report annually on how much electricity
they have bought or sold to themselves and outline clearly the profits being
"Even before the recent reports of wholesale price-fixing, we were
extremely concerned about the lack of transparency around wholesale prices
and suppliers' trading arrangements," Yeo said in a statement accompanying
Ofgem must also clarify its plans to implement fairness proposals in the
retail market to eliminate loss-leading tariffs which hinder the entry of new
market participants and force legacy customers to pay "above the odds," the
The measures followed a flurry of retail price hikes over the second
half of 2012.
In December E.ON UK became the last of the big six to announce
higher retail energy costs following earlier announcements in which suppliers
blamed rising costs of wholesale energy and government schemes for the tariff
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