Energy and Climate Change Committee slams government energy reform as unworkable

Ecobuild supplement

Government plans to secure billions of investment in building new nuclear, wind, tidal and other clean energy sources have been rendered unfit for purpose by the Treasury, MPs have claimed.

A report by the Energy and Climate Change Committee concluded the government’s plans for reform of the electricity market under the Energy Bill were “unlikely to be workable in practice”.

The cornerstone of the government’s proposals is to guarantee the price that investors who build new clean electricity generation plants will be able to charge for that electricity for years to come.

The “contracts for difference” mechanism is needed to give investors confidence to spend on build programmes with high upfront costs such as new nuclear power plants.

But the report said caps imposed by the Treasury on the budget for such incentives were undermining the plan because they did not allow investors to have confidence about what would happen when the pot of cash available was used up.

The committee suggested a two stage registration process of projects at an early and late planning stage to avoid the problem.

Tim Yeo, chair of the committee, said: “Nobody wants to see a blank cheque written out for green energy but the government must provide investors with more certainty about exactly how much money will be available.”

Vincent de Rivaz, chief executive of EDF Energy, said: “Investors need confidence that the parliamentary process will deliver a robust policy framework as and when they take critical decisions on their projects.”

Volker Beckers, chief executive of energy firm RWE nPower, said: “Investor confidence has never been improved by delivering complex, bespoke new arrangements which only look workable on paper; it’s about policy that is clear and bankable.”

The report also backed industry concerns that the contracts for difference would not be underwritten by government but by a separate body.

It said the current scheme would not succeed in reducing the cost of capital for developers, as it was intended to, because it would nto be possible to accurately assess the creditworthiness of a seperate body and therefore deliver the savings on borrowing.

Energy secretary Ed Davey said: “The Energy Bill will enable us to make radical changes to the electricity market that deliver investment in secure, low carbon, affordable energy.

“We welcome the Committee’s report and their recognition of the importance of this Bill. We are determined to use the pre-legislative scrutiny period to develop a robust and effective Bill with the interests of both consumers and investors at the heart. The Committee’s input will be extremely valuable as we do this.”