May 22, 2012

expert reaction to the Draft Energy Bill

The government announced the Draft Energy Bill, aiming to plug a looming energy gap with £110 billion of investment in nuclear and renewable energy over a decade, but avoiding a commitment to banish coal and gas by the 2030s.

Dame Sue Ion, Fellow of the Royal Academy of Engineering, said:

“We welcome the government’s realisation that action is needed now to restructure the UK’s energy system in order to ensure that the large scale investment, needed to meet future energy demand and enable lowering of the UK’s greenhouse gas emissions, actually stands a chance of going ahead. Government has to give investors confidence to proceed with the most challenging investment in energy infrastructure for nearly two generations.

“Hopefully the steps set out in the bill will start to build that confidence. The big issues then will be the engineering challenge, the mobilisation of supply chains with significant UK content and the pipeline of skilled engineers to deliver projects across the whole of the energy sector and its supporting infrastructure.”

Nick Baveystock, Director General of the Institution of Civil Engineers (ICE), said:

“The Bill marks an important step towards meeting the UK’s three-fold energy challenge of sustainability, security and affordability. Engineers know that delivering any major ‘first of a kind’ project is extremely challenging and requires a high degree of flexibility; in contrast the proposed market reform mechanisms depend on complex interactions of regulation and processes, leaving little margin for error. But we must be bold and work together to cut through these challenges to deliver the energy security the UK needs.

“Success will be determined by the practical application of what Government is trying to achieve. ICE will be scrutinising the Bill over the coming weeks to assess its fitness-for-purpose from a practitioner’s perspective. The final scheme must be robust enough to drive the right investment in the right mix of energy generation for the future while being flexible enough to adapt in the face of the ‘pervasive’ uncertainty that DECC themselves identify.”

Robert Sansom of the Institution of Engineering & Technology (IET), said:

“We are surprised that no reference is made to demand in the announcement made today. Support for low carbon generation will inevitably result in higher prices for consumers, but these price increases can be offset by improvements in energy efficiency, thereby reducing energy consumption, which is also better for the environment. In addition demand has a crucial role to play in reducing the amount of capacity required. The reforms to the electricity market must recognise this role and ensure incentives are available to reward customers accordingly.”

Prof Michael Grubb, Chair of Energy and Climate Policy at the Cambridge University Centre for Mitigation Research, said:

“I give two cheers for the UK Energy Market Reform. The present system is unsustainable – it was great for sweating assets and for fostering a new generation of gas plants whilst gas prices were low, but everything else was a patchwork. Energy prices over the winter showed the risks that consumers could face from a system even more dependent on gas; without these reforms, within a decade UK buildings could be over 70% dependent on gas for both their heating and electricity.

“The reforms set out in the Energy Bill offer a system for down-payments against two risks: excessive fossil fuel dependence and climate change. Overall, it’s an ambitious insurance package, which could deliver also on both domestic and international commitments.

“The question remains whether UK citizens want to pay the insurance bill, and whether the government can implement it effectively and efficiently. The core proposals – on contracts and the capacity payments – make sense. The Emissions Performance Standard has become a red herring that should be scrapped.

“Insurance is not free, and the resulting choices will not be popular: whether it’s onshore wind (the cheapest), offshore wind (the most complex), or nuclear (the most controversial to negotiate and implement). Yet the Energy Bill could at last herald a grownup conversation – with real negotiations – about the UK’s energy options. Doing nothing was not a credible option.”

Dr Bridget Woodman, Energy Policy Group at the University of Exeter, said:

“Rarely can an energy measure have attracted such universal condemnation. The key players – renewable generators, most energy companies, consumer groups and commentators – all recognise that Contracts for Difference (CfDs) won’t deliver a sustainable energy future. Only EDF will welcome a policy mechanism which is a back door nuclear subsidy, and even then it’s unlikely to be sufficient to lead to new nuclear construction on its own. CfDs are the product of misguided policy making and won’t achieve what is claimed for them. The government is in a hole and needs to stop digging before it’s too late to put the UK on a path to a sustainable energy future”

Prof Jim Skea, Research Director at the UK Energy Research Centre, said:

“The Draft Energy Bill brings more clarity about the framework for Electricity Market Reform, but precisely how nuclear, renewables and CCS will be encouraged is still not clear, and will only become clear when secondary legislation is published. Nevertheless, some very clever people have put heavy duty thinking into this. The headlines for me are that: “contracts for differences” turn out not be “contracts” at all, but legislative instruments; and the capacity mechanism intended to guarantee security of supply is simply an option that would be exercised if there appeared to be a real risk of the lights going out. The draft bill doesn’t bring either the waiting or the debating to an end.”

Prof Stuart Haszeldine, Professor of Geology at the University of Edinburgh, said:

“This market reform provides the business structures for developing low-carbon electricity supply as normal business. This is a major and fundamental innovation, unique in the world.

“Higher ‘Contract for Difference’ prices are particularly important for Carbon Capture and Storage (CCS) because this is still at its most expensive experimental stage. To encourage development of new technologies such as CCS, it is essential that contract for difference price into future time, plus annual running hours, plus fuel price are all built into the electricity price. Without a comprehensive price package, CCS will not develop and UK consumers will pay more in the long-run.

“New-build nuclear power cannot go ahead until the waste disposal problem is solved. The UK has no viable radioactive waste storage site, because west Cumbria does not meet international guidelines and is proven to be geologically unsuitable.”

Dr Rob Gross, Director of the Centre for Energy Policy at Imperial College London, said:

“This risks becoming a missed opportunity. Reduced reliance on coal and gas could make bills more stable and reforming the market could help. But the bill plans to replace complex and flawed rules with an equally complex set, with its own flaws. This could hinder renewables and carbon capture, at least in the short run.”