Energy Bill 2012

“The Bill will support the construction of a diverse mix of renewables, new nuclear, gas and CCS, protecting our economy from energy shortfalls and significantly decarbonising our electricity supply by the 2030s as part of global efforts to tackle climate change.”

Rt. Hon Ed Davey MP, Secretary of State, Department of Energy & Climate Change

This Bill is designed to establish a legislative framework for delivering secure, affordable and low carbon energy. It will introduce long term contracts to give power companies a guaranteed price for the low-carbon electricity they produce. This is intended to reduce the risk of investment in projects with high up-front capital costs, such as nuclear reactors, carbon capture and storage (CCS) and offshore wind farms. 

Low carbon electricity spending allowed for under the Levy Control Framework (LCF) is to be tripled over the period to 2020. The LCF budget is currently £2.35 billion in 2012/13. This will rise to £7.6 billion in real terms in 2020/21.

The Bill includes provisions on:

• Electricity Market Reform (EMR);
• Introduction of a Strategy and Policy Statement (SPS) to improve regulatory certainty by ensuring Government and Ofgem strategic alignment;
• A technical amendment to avoid offshore wind generators constructing transmission assets falling foul of the law;
• An amendment in respect of cost recovery for advice on the new nuclear waste and decommissioning financing arrangements;
• Proposals for the sale of the Government pipeline and storage system (GPSS); and
• New powers to enable Ofgem to provide redress to consumers.

The Energy Bill is expected to achieve Royal Assent in 2013, so that EMR is fully up and running in 2014.

Key points of the EMR

Contracts for Difference
Long term feed-in tariffs with Contracts for Difference (CFDs) aim to provide investors with the certainty they need and encourage low carbon electricity generation. These contracts will be held between power generators and the CFD counterparty. A Government-owned company is to be established to act as the CFD counterparty. National Grid has been appointed to administer the CFD market and allocate CFDs. The mechanism will work by setting a “strike price” (price per unit electricity generated) at the level necessary to support each particular technology.

A Final Investment Decision (FID) enabling process is to be introduced to expedite the delivery of projects and prevent an investment hiatus before the CFD regime is fully established.

Transitional arrangements
Arrangements are to be put in place for the period to 2017 to allow for choice between the new CFD system and the existing Renewables Obligation which will remain available to investors until 2017.

Capacity Mechanism
Capacity Market – designed to ensure sufficient electricity capacity is available to meet future electricity demand. Peak electricity forecasts will be used to determine the level of capacity support needed. Capacity providers (either generation or demand side response) bid into a central auction where they guarantee to provide capacity in a given year in the future. Those with successful bids will receive a guaranteed revenue stream for providing capacity separate to any revenues received through the electricity market.

Emissions Performance Standard
The Emissions Performance Standard (EPS) will place an upper limit on the emissions level of existing fossil fuelled power stations, ensuring that any new coal fired power station will have to have CCS fitted to be able to operate within the limit. This annual EPS limit is equivalent to 450g CO2/kWh of electricity for a baseload plant (85% of time).

Carbon Price Support
Government has already legislated for a Carbon Price Support mechanism from April 2013, placing a minimum value to carbon emissions which will rise from around £5/t CO2 at its introduction to £30/t CO2 in 2030.

Market Liquidity
Additional powers will allow Government to promote greater competition and liquidity in the wholesale market.

Additional developments
During passage of the Bill, additional clauses may be added following on from a number of consultations, including:

• Proposals to reduce the number of energy tariffs that companies can offer;
• Proposals to promote energy efficiency through electricity demand reduction; and 
• Powers to set a decarbonisation range for the power sector for 2030 (a decision will be taken once the Committee on Climate Change has provided advice in 2016 on the fifth Carbon Budget which will cover the corresponding period (2028-2033), and once Government has set that budget.