The Energy Bill will give more power to the Big Six
This week MPs debated the Government's new Energy Bill. It should be a golden opportunity to develop clean energy and break the stranglehold of the Big Six energy companies on the UK power market. But the Coalition's proposals as they stand could make it virtually impossible for community groups to set up renewable energy projects, and could hand the Big Six even more control than they have already.
The Government has spurned pressures to establish a simple system, used in Germany, of fixed payments through Feed-in Tariffs that would offer an even playing field to community energy schemes as well as multinational corporations. Thanks to campaigning by organisations like Friends of the Earth, the UK did introduce a Feed-In Tariff in 2010. But it is limited to small-scale projects up to 5MW and the Coalition's current plans won't increase this. Incentives for larger renewable energy schemes like wind farms and solar arrays may only be available for very big power companies that can trade directly on electricity markets.
Speaking to Annette Heslop, Director of community wind company Energy4All, it is clear that the system under discussion will pose challenges. "It would be very complex and difficult for companies like us and community renewable schemes in general to sell power directly onto the market", she tells me. The company has a dozen operational or planned projects based on community ownership. They have been working to establish projects under the current Renewables Obligation (RO) programme, that the industry has grown familiar with.
But the RO will be phased out after 2014 and replaced with a complex system called 'Contracts for Difference', that some critics argue has been chosen mainly to conceal new subsidies to nuclear power. Companies can access the new subsidies only if they are able to trade directly on power markets, something which requires many millions of pounds of start-up capital, regular payment of high fees and a trading desk needing staff.
Cooperatives UK, which supports community energy projects around the country, says: "with the end of the Renewables Obligation, suppliers will have no incentive to purchase renewable electricity from independent generators". There are fears that without an obligation, and without serious competition from independent generators, even the Government's modest plans for renewable energy generation will not be met.
Following pressure from independent companies, the Government has conceded a clause in the Energy Bill that could force electricity suppliers to offer long-term contracts to supply electricity, called 'power purchase agreements' (PPAs), to independents. However, in practice, when PPAs are issued to independents, the electricity suppliers often keep a large share of the market value of the renewable generation. "The (long term) PPA is likely to generate a lot less income than would be gained on the short-term power markets", says Annette Heslop.
Critics argue that the proposed Contracts for Difference will allow the Big Six to use the complexity to make extra profits from renewable energy - compared to a Feed-in Tariff system that would be fairer to independents. A report written last year by Cambridge University Professor David Newbery estimated that by 2020, the Government's proposed contracts are likely to cost £70 million a year more for onshore wind farms alone, compared to a Feed-in Tariff system.
It's clear that we need a radical rethink on the way to develop renewable energy. MPs will return to debating the Energy Bill next year. They need to give it a thorough going-over - ensuring that it firstly includes a target to clean up our electricity system by 2030, and secondly introduces a large-scale Feed-in Tariff. This will open up Britain's energy market to smaller suppliers, and deliver the clean energy we badly need to cut emissions and tackle climate change.
Dr David Toke is Senior Lecturer in Energy Policy at the University of Birmingham. Today Friends of the Earth publishes his report, A Proven Solution: How to grow renewables with a Fixed Feed-In Tariff.
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