The Draft Energy Bill - Britain's Energy Future lost

25 October 2012

As a child, I was quite into Meccano. It was my first encounter with paradigm shifts. I could make a great car. But sometimes the mood changed. I would turn it into a boat, and then a plane. Invariably, the end product - whatever it looked like - neither rolled, sailed, nor flew. So it is with the Government's Draft Energy Bill.

As Parliament went into recess, the Energy and Climate Change Select Committee (ECC) published its savaging of the Draft Energy Bill; cautioning MPs not to underestimate "...the scale of the challenge that the Government is facing in preparing a Bill that is fit for purpose in time for introduction in the autumn..."

As MP's return from the Party conference season, the Secretary of State for Fossil Fuels, George Osborne, continues to set out his policies with a promise of a 'generous' tax break for shale gas. Meanwhile a variety of foreign firms play pass-the-toxic-parcel with the UK's nuclear programme. Parliament is faced with a shambles, not a strategy.

But another Energy Bill is possible...

Traditionally, energy security was about delivering a 'baseload' of electricity that would be permanently available and variable 'capacity' to add to this, in line with the peaks and troughs of daily life. The engineering (and pricing) of this was a complicated matter, but the thinking behind it was quite straightforward. Demand would peak in the breaks between popular television programmes, when people put the kettle on. There would be higher demand when industry was working than when people were sleeping. Pre air conditioning, cold spells were more demanding than warm weather. Energy policy did little about demand management but concentrated on the sufficiency of supply.

This produced power companies that were focused on selling energy consumption, but with no clue about markets in which the objective might be to produce/consume/distribute less. When climate change did not matter, carbon emissions were not a factor.

Falling energy prices and increasing energy consumption meant conventional models of growth were based around increased production to meet demand. The energy market made a virtue out of the profligate, with demand and supply feeding each other's ever greater appetites. Tomorrow's energy world must be be very different, so must the Energy Bill.

Now the consensus across Labour, Lib Dems, much of business and campaigners is now firmly in favour of a binding target for decarbonisation of the electricity system by 2030. There remains a tough battle to be fought to secure this in the Bill. But for it to do the job of driving investment and providing certainty this has to be set in primary legislation and free of vague clauses designed by officials to diffuse the political pressure and render it impotent in practice.

At the centre of the Draft Energy Bill were was something known as Contracts for Difference. This is proposed to be the policy to support investment in renewable energy over the next decade or so. But far from opening up the renewable energy market to all comers this fiendishly complicated policy would ensure that the UK's existing 'closed' energy market - dominated by the Big 6 - would become even more concentrated. Small generators would be allowed to play only on 'take it or leave it' terms. For independent renewable energy generators, the situation would become even worse once the big energy suppliers are 'freed' from any obligations to buy their renewable electricity from them after 2017.

Without an obligation on energy suppliers to pay for the renewable power on offer, independent renewable generators - who would find it difficult if not impossible to engage directly in the wholesale electricity markets - would be dependent on accepting a Power Purchase Agreement from one of the big players. These would only be on offer at prices dictated by the existing big players.

Meanwhile nuclear power stations can look forward to favourable terms. The issue DECC always avoids is that the costs of new nuclear are on an ever-rising spiral, whilst Feed-in Tariff payments to small scale renewable technologies - such as solar PV - have falling 'degression' rates attached to them, so each year new renewable installations coming online receive a lower annual payment for their electricity than those built the previous year. The renewables market only expects the taxpayer to help with their transition, and to level the playing field with more established polluting technologies as renewables costs come down.

Tomorrow's energy market balancing mechanisms will be found in a combination of demand reduction/demand management measures, interconnectors, storage, anddecentralised generation. Yet these are reduced to an also ran in the propsed Capacity Market rather than being placed centre stage.

By comparison in Germany a different vision is on offer. There are the 'Lichtblikt' ('Ray of Hope') experiments - encouraging towns and cities to take devolved responsibility for grid management; selling energy efficiency and demand management in preference to increased consumption; and inviting technology innovation to create smarter, interactive grid systems. These experiments are defining a different energy future, in which 'security' is no longer in the hands of the big power stations. Any updating of UK energy policy has to be able to embrace the same thinking.

The key to greater public involvement in the shaping of Britain's energy future will be found in the extent to which local/public ownership of both the means (and benefits) of energy generation are placed at the centre of the Energy Bill.

In comparison The Draft Energy Bill published in the spring was incoherent. 'Contracts for Difference' (CfDs) are a financial road-crash waiting to trash the economy. The proposed Emissions Performance' Standard is pitiful. Demand reduction measures are non-existent. The role of interconnectors and intelligent grid management is totally overlooked. And the 'Capacity Market' is as relevant to tomorrow's energy market needs as my car/boat/plane.

As MPs wait for the Energy Bill to be published, there is a case for a more far-reaching approach to how Britain meets its future energy security needs. Read my full vision for the Energy Bill here.