Five ways to rescue the draft energy bill
1. It argues for direction
Government needs to set out what it hopes to achieve through the bill or it could add to investor uncertainty, not reduce it. The committee calls for a 2030 electricity sector carbon intensity target to be put in secondary legislation, based on advice from the Committee on Climate Change. Recent tussling between Treasury and DECC over the current support available to renewables under the Renewable Obligation, shows how vulnerable the whole process is, even with economy wide carbon budgets in place.
2. Counterparty to contracts is key
The draft energy bill includes plans for a type of Feed-in Tariff to support large scale renewable electricity generation. Under a ‘Contract for Difference’ (CfD) model, electricity generators will receive a payment from a contractual counterparty if wholesale electricity prices fall below a predetermined price, and will refund the difference if prices move higher. The government’s current proposals for a ‘multiparty counterparty’ – where electricity suppliers would collectively take responsibility for the payments – aren’t seen as bankable by investors, who are unsure whether these contracts would be legally enforceable. The committee urges for a return to a single counterparty for the Contract for Differences underwritten by the government.
3. Going for the big prize: reducing demand
The committee calls for the draft bill to be amended to provide the secretary of state with powers to introduce a Feed-in Tariff for energy efficiency, if this cannot be achieved through existing legislation. Green Alliance is looking at how an energy efficiency FIT could help to deliver the vast potential savings in electricity demand that have been identified by analysis done for government, which shows that electricity use could be reduced by 40 per cent by 2030 but that existing policy will only deliver around a third of these savings.
4. It recognises the need to nurture demand-side response
The Committee notes that support for innovation is given to the supply-side, for example by the banding of the Renewables Obligation, and the bill should provide similar support to demand-side and storage technologies.
5. It puts the Treasury on the spot
The committee stressed the need for a firm commitment to decarbonisation from across government, not just within DECC, for the bill to be effective. The committee warns that the “rationing” of CfDs under the Treasury’s levy cap will increase development risk and that the Treasury should make it clear that the cap will not trump the commitment to achieve legally binding climate change obligations.