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Energy Bill: Households to fund £7.6bn green investment
COMMENTS (1068)

The Bill will mean consumers paying for cleaner energy generation
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The government has published details of its long-awaited Energy Bill, designed to keep lights on and emissions down.

It will allow energy firms to charge households an extra £7.6bn until 2020, which will go towards the development of low-carbon electricity generation.

A decision about setting carbon emission targets for 2030 has been delayed until 2016, after the election.

Fears have been expressed about the impact on bills and whether this delay will put off investors in new plants.

Announcing the Bill, the government said: “With a fifth of the UK’s electricity generating capacity due to close this decade, reforms are needed to provide certainty to investors to bring forward £110 billion investment in new infrastructure to keep the lights on and continue the shift to a diverse, low carbon economy as cheaply as possible”.

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The independent advisory committee on climate change estimates the £7.6bn the plan allows for will add about £110 to the average household energy bill in 2020.

The Department for Energy and Climate Change (DECC) has a lower estimate of £95 – or a rise of 7% – although some analysts think it would be more.

DECC believes the clean energy and efficiency measures will save on bills in the long run. The Energy and Climate Change Secretary, Ed Davey, told the BBC that the measures would eventually save about the same amount.

Environmentalists condemned the bill, saying the lack of a 2030 emissions target would make it very hard to meet the UK’s law on climate change.

But business groups said more needed to be done to mitigate the impact on firms of these extra costs, pointing to the loss of 900 jobs at a major energy user such as Tata Steel, as it cut back its operations in the UK.

The Energy Intensive Users Group said it supported the government’s efforts to shift to cleaner energy generation “but we need to ensure that in doing so we don’t undermine competitiveness of UK manufacturing internationally”.

Consumer groups also expressed concern about the prospect of higher bills.

“The Treasury has generously agreed to stick the entire cost of de-carbonising UK power on to consumer bills. At the same time, they are pocketing all the money they are raising in carbon taxes,” said Ed Matthew, the director of the Energy Bill Revolution campaign, arguing that this revenue should go into a major energy-efficiency programme to reduce bills.

Battleground

Details of the bill were announced late on Thursday although the Bill itself will not be published until next week.

They include:

Households to pay an estimated £20 next year to fund clean energy investment, rising to £95 in 2020
Energy companies to get £7.6bn from this to invest in low-carbon power
But no target for carbon emission levels by 2030
Longer-term emission levels to be discussed – but not necessarily set – in 2016
Crudely speaking, the bill has been a battleground between Chancellor George Osborne, who favours gas-powered generation, and the Liberal Democrats, who want clean energy.

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Analysis

Roger Harrabin
Environment analyst
What the chancellor wants, the chancellor normally gets – and that’s mostly what’s happened in the Energy Bill.

In this case he was willing to concede that householders should pay around £100 a year extra on bills by 2020 to fund clean energy.

DECC argues that in the long term clean energy will save money because renewables and nuclear are dear to build but relatively cheap to run.

But beyond 2020 Mr Osborne has refused to commit. He doesn’t think the UK should be taking a global lead on cutting emissions while competitor economies are not following. And he thinks gas may be a cheap power source in future.

So he has rejected the plan for a 2030 target for cleaning up the electricity sector. This 2030 goal is not legally binding, but it is said to be needed if the UK has a reasonable chance of meeting long-term emission targets under the Climate Change Act.

The compromises made in the battle have increased certainty for investors to create new energy infrastructure until 2020, but they have increased uncertainty beyond 2030.

Prices won’t be certain either. There’s a popular notion that gas will be a cheap source of power. The truth is, it’s impossible to predict whether volatile gas prices in the 2020s will be cheap or expensive.

All parties will breathe a sigh of relief that this seemingly endless feud is resolved – until it comes next year to setting specific subsidies for nuclear and renewables, that is.

Follow Roger on Twitter @rogerharrabin

The chancellor is adamant that gas will help keep down power bills in the future.

Labour said this was a “humiliating failure” for the Lib Dems, who wanted gas banished from the electricity system almost entirely by 2030 to reduce CO2 emissions in line with the Climate Change Act, although gas will be needed as a back-up.

The Lib Dems believe gas prices are too volatile to be a reliable source of energy. The International Energy Agency has forecast natural gas prices to rise by 40% by 2020, even with an influx of cheap shale gas.

The Labour leader, Ed Miliband, said the government had made the wrong decision for the environment and the economy: “Instead of doing deals they should be doing the right thing by the country and the right thing by the country is to commit to carbon free electricity by 2030.”

This was supported by environmental groups.

“By failing to agree to any carbon target for the power sector until after the next election, David Cameron has allowed a militant tendency within his own ranks to derail the Energy Bill,” said John Sauven, executive director of Greenpeace.

Confidence to invest?
The conservative chairman of the Commons’ Energy Select Committee, Tim Yeo, said the lack of a target was a “significant” omission which would add to uncertainty for energy firms deciding whether to spend billions of pounds on building new power plants over the next few decades.

But one major power company, EDF Energy, which is planning to build two nuclear power stations in Somerset, said it was happy with the contents of the Bill which gave “further clarity”.

“The introduction of the Energy Bill next week is a very positive step,” said EDF Energy chief executive Vincent de Rivaz.

The company, in line with other major producers, said it needed to see the details of the proposals before making any commitments to build new power plants.

There are many more fragments to come in the energy jigsaw.

Decisions on the way subsidies from bills will be shared between nuclear and various renewable technologies will be made next year.

Key decisions on how to ensure there are enough gas power stations to keep the lights on when the wind is not blowing will be announced alongside the chancellor’s Autumn Statement.

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When forecasters struggle to know if we’re heading for a triple dip of recession, and the risk of falling off a fiscal cliff next month, a much more distant horizon has been scanned this week.

This one gets less reliably predictable the further out you go, but allowing for that, the view is both fascinating and alarming.

The International Energy Agency (IEA) has published its annual World Energy Outlook, and it’s hard to think of any time when there’s been more change under way.

The element that caught a few headlines was the forecast that the US is on course to replace Saudi Arabia as the biggest producer of oil by 2020. Much of this is based on unconventional methods of fracturing ‘tight’ or shale rock.

That will surely mean America stops looking to the rest of the world for energy security, and by around 2030, it becomes a net oil exporter. In turn, that means that the Middle East will become relatively more important to Asia as its dominant energy source.

In geo-politics, India and China will be the countries with the biggest interest in ensuring the Straits of Hormuz stay open. So whose aircraft carriers are going to be policing it?

Among those sending oil out through those Straits is Iraq, which is on track to become the second biggest exporter of oil by 2035, after Russia. The IEA says that should earn it around $200bn per year up to 2035. Ensuring Iraq comes on stream is seen as vital to keeping oil prices under control.

Dash for gas

Among the other prospects set out by the IEA:

• Cheap US gas is already driving down the price of the biggest substitute for generating electricity, coal, freeing it up for export to Europe, where it is displacing Europe’s relatively highly-priced gas.

• By 2030, the US will depend more on gas than on oil. while China is growing its use of natural gas from 130 billion cubic metres last year to 545 bcm in 2035.

• Coal has been vital to meeting demand for energy over the past decade, growing even faster than renewable power.

China is the dominant coal-burner. Its increase in coal-burning is increasing almost as much as nuclear, wind and hydro combined. But by 2020, India is on course to become the biggest net importer of coal, to fuel its growth. Five years later, it will have overtaken the US as the second-largest user of coal.

• The development of liquefied natural gas facilities will make gas moveable and more tradeable, meaning cheap prices in the US, and other areas where ‘fracking’ is developed, can help drive down prices around the world.

More efficient use of energy in developed economies is being outweighed by more demand for oil in emerging ones, notably in China’s transport sector. Transport already accounts for more than half of global oil consumption, says the IEA, and that share will rise as the number of cars doubles to 1.7bn.

Freight transport accounts for 40% of the growth in demand, partly because trucks are growing more efficient at a slower rate than cars.

Powerless

Europe appears to be a small player in these giant, long-term global trends. But what does it mean for your fuel bills? Well, global electricity prices are expected to increase in price, in real terms, by 15% by 2035.

They’ll be pushed up by higher fuel input costs, the cost of renewing generating capacity and subsidies to renewables in some countries.

Those renewable subsidies are going to become a lot more expensive, rising from $88bn last year to nearly $240bn in 2035.

And despite all this development, the number of people living without electricity in their homes will have only fallen over the next two decades from 1.3bn to 1bn, with no fall in the number of people – 2.6bn – reckoned to have no clean cooking facilities.

On the back burner

At least as important as the human development index is the impact of all this on climate change.

The development of cheap gas, particularly in the US and at a time of economic hardship, has radically turned around perceptions of energy markets and the drive for cheaper fuel.

So the drive to get carbon emissions down appears to be on (excuse the pun) the back burner.

The IEA has looked at the attempt to limit global warming to an average 2 degrees Celsius, noting that each year, it looks more difficult and more costly to do so.

And here’s an astonishing fact: four-fifths of the allowable carbon dioxide emissions by 2035 are already locked in by existing power plants, factories and buildings. If action isn’t taken by 2017, all the allowable emissions for 18 years after that will be accounted for.

“Rapid deployment of energy-efficient technologies would postpone this complete lock-in to 2022, buying time to secure a much-needed global agreement to cut greenhouse-gas emissions,” says the IEA outlook.

And unless carbon capture can work on a very large scale to bury emissions under ground and under the seabed, the 2 degree target means that no more than one third of proven reserves of fossil fuels can be consumed before 2050.

Close to home, that runs counter to the drive to extract every last drop of oil from under UK (or Scottish) waters.

Doing so makes sense in economic and taxation terms, but it runs into trouble if hydrocarbons are being sourced much more cheaply from unconventional sources, and it runs up against the drive to bring down emissions.

Stand by for more tomorrow on the future significance of oil under Scottish waters.

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