British government announces sweeping energy policy changes

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The biggest reforms to the UK energy sector in two decades were announced last which prompted warnings from consumer groups and green campaigners that they would raise bills and penalize renewable energy and boost reliance on nuclear power.

The sweeping reforms, detailed in the draft energy bill, grant the government powers to intervene in the market on a scale not seen since the industry was privatized.

Under the changes, low-carbon generators including nuclear companies will receive a fixed price for their energy that should be higher than they can sell it for on the open market, and ministers will create a 'capacity market' to ensure a reliable supply of power and prevent blackouts.

There will be a minimum price for carbon dioxide emissions, and an emissions performance standard that will in effect stop any coal-fired power stations being built without technology to capture carbon.

Ed Davey, the secretary of state for energy and climate change, said the reforms would help to bring forward the estimated £110bn in private-sector investment that will be needed for new low-carbon energy capacity, and that they could generate as many as 250,000 new jobs.

'Leaving the electricity market as it is would not be in the national interest,' Davey said, noting that a fifth of the UK's current ageing power stations are likely to come out of service by 2020. 'If we don't secure investment in our energy infrastructure, we could see the lights going out, consumers hit by spiraling energy prices and dangerous climate change. These reforms will ensure we can keep the lights on, bills down and the air clean.'

Davey said the government's analysis showed that the reforms would ensure that consumers' energy bills would rise by less than they would otherwise over the next 20 years.

Charles Hendry, the minister of state for energy, said the government had to intervene:

'The market did a good job keeping down [energy] prices to the lowest in Europe, but it did not bring forward enough new investment. If we are going to keep the lights on in an affordable way, this is not a luxury - it's absolutely essential.'

But there was widespread concern about some of the most vulnerable.

Maria Wardrobe, director of external affairs at the fuel poverty charity National Energy Action, said: 'The government can do little to disguise that these proposals will add substantially to already soaring energy bills and place much more risk on domestic energy consumers.'

She called for VAT revenues from fuel to be recycled into energy-efficiency programs to lift vulnerable people out of fuel poverty.

Richard Lloyd, executive director of Which?, said: 'We want to see more evidence and the small print before we can judge whether this will work for all of us who are expected to foot the bill.'

George Monbiot, a noted author and commentator on British energy policy writing in the Guardian, described the energy bill as a sleight of hand. (See Britain's climate change policy is going up in smoke ).

Green groups and some renewable energy companies also attacked the draft bill, accusing ministers of breaking promises not to subsidize nuclear power, because the 'contracts for difference' by which low-carbon power generators will be guaranteed a price for their electricity will favor the nuclear industry. Davey denied the charge, and said the plans would encourage all forms of low-carbon generation, helping the UK to meet its climate-change targets.

By giving generators a fixed price guaranteed in advance for their power, the 'contracts for difference' system should offset the risks taken by renewable and nuclear developers, which have to shoulder high upfront costs before they can start reaping the returns from their investment, he noted. If the market price turns out higher than the 'strike price' agreed in advance, there will be arrangements to claw back some of the difference.

However, many of the details on how some of the reforms will work have yet to be set out. For instance, the 'strike price' for the first round of contracts for difference will not be set until 2013, and a 'delivery plan' for implementing them will come into force in mid-2014.

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