The Energy and Climate Change Committee (ECC) has delivered a damning verdict over the Treasury’s move to water down proposals in the draft Energy Bill for the upcoming Electricity Market Reform (EMR), due to be introduced this autumn. The committee of MPs has warned that the bill could impose unnecessary costs on consumers, lead to less competition and deter badly needed investment.

It appears that the rift between the Department of Energy and Climate Change (DECC) and the Treasury is deeper than once thought. After the Chancellor, George Osborne, reportedly dug his heels in over demands to cut the subsidy rate for large-scale wind it has emerged that his department has once again intervened to limit the amount of support given to renewables. After examining the draft legislation, the ECC has strongly criticised the Treasury over continuing efforts to undermine renewable energy policy.

Tim Yeo MP, Chair of the ECC, said: “Government is in danger of botching its plans to boost clean energy, because the Treasury is refusing to back new contracts to deliver investment in nuclear, wind, wave and carbon capture and storage.”

Under the initial consultation, it was proposed that the ‘Contracts for Difference’ (CfD) would be underwritten by Government, using the state’s AAA-credit rating to keep the costs of energy investment at a minimum for consumers. However, the ECC has learnt that the Treasury has moved to block Government-guaranteed CfDs. Instead, liability for CfDs will be spread across energy companies. The ECC is concerned that such a model could make the scheme too complex and possibly not legally enforceable.

Yeo added: “Electricity market reform is essential, but the new contracts proposed by the Government will not work for the benefit of consumers in their present form. Government has a lot of work to do over the summer to make sure that the Bill is fit for purpose in the autumn and is not subject to any further delays.”

The Committee is particularly concerned over the spending cap placed on green levies by the Treasury, which has already led to significant turmoil in the solar industry. The ECC has warned that the cap could introduce an “unacceptable” level of risk for those looking to construct new renewable energy plants because the prohibitive cap will severely limit the number of contracts available – adding an extra layer of uncertainty for those considering investment.   

Yeo explained: “Nobody wants to see a blank cheque written out for green energy, but Government must provide investors with more certainty about exactly how much money will be available.”

Commenting on the ECC’s concerns, Chief Executive of the Renewable Energy Association (REA), Gaynor Hartnell, said: “It is clear from the Report that the Select Committee, like many in the energy sector and the investment community, has serious concerns about the Bill’s lack of clarity in key areas, and levels of complexity which it could create, that could stifle investment. Complexity and uncertainty risk adding to costs, as well as raising questions about meeting the UK’s renewables targets.

“The renewables industry, which should be a powerful engine for economic growth, wants to work with Government, but there is real uncertainty in the sector now, which is hugely damaging to the sector’s future prospects. As well as working with Government to get EMR right, we want to see the current support mechanism for large scale power, the Renewables Obligation, extended to 2020. And like the Committee, we want to see the current feed-in tariff mechanism for small power increased to at least 10MW. That would ensure the industry could continue to invest and expand with confidence, while we get these proposals right.

Hartnell stressed: “We are urging Government to take heed of the recommendations in the Report and to ensure that all of the concerns and issues are addressed with some urgency to ensure the Energy Bill, to be published in the autumn, carries the support and confidence of Parliament, industry and the investment community.”

Friends of the Earth's Head of Campaigns Andrew Pendleton, strongly agreed with the ECC’s report, stating: “This report really hits the nail on the head – the Treasury's block on reforms to the UK's electricity system threatens to keep the nation hooked on increasingly expensive fossil fuels for decades.

“Despite soaring fuel bills, an over-reliance on imported gas and a climate crisis that's gathering pace, the Chancellor refuses to accept that our energy system is broken and wants to build more dirty gas-fired power stations.

“Government must listen to the committee's advice and set a target to decarbonise our electricity system by 2030, slash energy waste and unleash a revolution that allows us all to benefit from affordable and clean British energy. There's huge public support for renewable energy investment instead of gas – David Cameron must stand up to George Osborne and ensure the Energy Bill helps to build a cleaner future.”

Robert Sansom from the Institution of Engineering & Technology (IET) said: “The draft Energy Bill represents the largest shake up of the electricity market since privatisation and the measures it puts in place will provide the framework for UK energy supply and security well into the 2030s. 

“The electricity industry and market is entering a period of rapid change and transformation as it gears up to meet the challenges of providing secure, affordable and sustainable energy.  We welcome the ECC’s report following its scrutiny of the draft Energy Bill which we note was conducted over a very short period of time.  The ECC has raised a number of concerns which we share.

“In particular we support its concern that there is too little focus on encouraging energy use reduction and we support the need for much more attention to demand side measures in the Bill.  We hope that government will give careful consideration to the ECC’s report and look forward to its response.”

Yeo concluded: “If the Energy Bill does not set a target to largely decarbonise the electricity sector by 2030, then the UK may miss one of the biggest opportunities it has to create a low-carbon economy in the most cost effective way.”

Caroline Flint, Labour's Shadow Energy and Climate Change Secretary, also expressed frustration over EMR proprosals:

“Britain's energy policy is in turmoil as divisions in Government are harming the UK's ability to secure investment for low carbon energy and jobs, fairer prices and more competition. Labour has been warning for the last year that we need an Energy Bill to challenge the dominance of the Big Six, secure low carbon investment, fairer bills and support for energy efficiency. The draft bill does not meet this test.

“George Osborne's meddling in energy policy is more to do with courting his anti-clean energy backbenchers, than securing the jobs and growth low carbon investment offers, which Britain badly needs. In a month in which it was revealed that DECC had an underspend totalling hundreds of millions of pounds, the Government ducked a decision on support for renewable energy and the DECC Permanent Secretary resigned, the select committee report is just the latest indication that Government energy policy is in turmoil.”