Opinion: Set decarbonisation targets in the Energy Bill

It's the UK’s only way out of the ‘energy trilemma’, says David Handley.

By Civil Service World

05 May 2012

Between now and 2020, a £110 billion investment is needed in the UK to deliver the low carbon electricity future that we are committed to. Up to half of this investment is expected to come from independent energy developers, who have responded to government signals to become world leaders in renewable technologies like onshore wind. The commitment to foster a low carbon economy has created a burgeoning industry that supports and protects the livelihoods of more than 100,000 people and contributes £12.5 billion to the UK Exchequer each year. It is delivering new start-ups in marine and tidal technologies and investment in national scale infrastructure projects in the onshore and offshore wind and large-scale biomass sectors.

This is an exciting time in an industry that is forging a growth-path within the UK economy that can provide a solution to the energy ‘trilemma’: with 20 per cent of our conventional power stations due to retire by 2020, how do we cut emissions, reduce our dependence on ever more expensive imports of natural gas, and deliver more energy at an affordable cost to consumers?

Disappointingly, the investor confidence of the last decade has now been damaged by the very public political battles over the shape of energy policy and the lack of a clear direction. And whilst the hatchet seems to have been buried, it is not clear for how long. This uncertainty undermines confidence to invest in the supply chain, it undermines the confidence of entrepreneurs to drive innovation and it undermines the confidence of the capital funds that we need to attract into the UK.

This confidence can be restored and has been ignited by the Conservative MP Tim Yeo and Labour’s Barry Gardiner, who have tabled an amendment for the inclusion of a 2030 decarbonisation target in the Energy Bill, currently going through Parliament. A target provides a signal to long-term investors and is a key driver in delivering more renewable capacity on the ground.

If this amendment is not made, the issue won’t be revisited again until 2016 and critical investment decisions will be left. The voice of the ‘wait-and-see’ proponents that are on every corporate board will gain strength as they will not have the legislative certainty they need to sign-off investment decisions.

The Energy Bill is a crucial opportunity to get the right sustainable energy mix in the UK. It has to be structured in a way that drives forward renewables investment and achieves market plurality, which is in the best interests of competition and the consumer. Critically, it therefore has to work for independent generators. However, as currently drafted, the Bill does not provide a secure and viable route for independents to sell their electricity into the market except via the big utilities, who may charge above the odds for doing so.

Without action to address this problem, there is a risk of a permanent reduction in energy infrastructure investment. This will have negative ramifications for the delivery of the UK’s infrastructure upgrade and security of supply, not to mention jobs and growth. An effective Energy Bill should not only provide investor confidence, but should also create a wider, positive impact amongst the thousands of suppliers and small businesses that depend on the sector. A failure to introduce a 2030 target or to fix the route to market problem would be a failure for the economy, the environment and the consumer.

David Handley is chief economist of the RES Group energy company.

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