AS TEMPERATURES plummet across the UK, and snow causes travel disruption, it is appropriate that the detailed scrutiny of the UK government’s Energy Bill begins in earnest in Parliament this week.
The cold weather serves as a timely reminder to MPs that the cost of energy needed to heat and power homes and businesses across the UK is linked to decisions we will make.
The need to renew and replace ageing plant, reduce and better manage demand and limit the reliance on imported energy is broadly accepted. That is the easy part. The challenge is how to do so in a cost-effective way when household energy bills are soaring, up by almost £300 a year since 2010.
The centrepiece of the government’s proposed Energy Bill is the contract for difference – designed as a way of providing long-term energy contracts, which should reduce the cost of capital investment and keep price increases down. But as we have heard recently from Ian Marchant, chief executive of SSE, and Keith Anderson of Scottish Power – there remain significant flaws, gaps and concerns in the proposals. The purpose of scrutiny is to plug those gaps, correct the flaws and address concerns. Without doing so, the cost reductions promised are highly unlikely to materialise.
Yet this is undermined by the continuing turf war between the Department of Energy and Climate Change and the Treasury. Government infighting over onshore wind, the role of gas and decarbonising the power sector is not only unedifying but it sends a signal that the UK is not a stable and attractive place to invest. While one department points out the impact fluctuations in global prices have had on bills, the other promotes a gas strategy which would almost certainly increase how much gas we import. For every therm coming from Norway, more is imported from Qatar and elsewhere, all impacted by the global market and international events.
So, somehow, the government has achieved the publication of a bill that is simultaneously overly complex yet lacking in detail. Investors are expected to stump up the cash without knowing what they are investing in. Arguments between ministers are having a knock-on impact on investment in the UK, with consequences for jobs and growth. Independent analysis by Bloomberg New Energy Finance shows that investment in renewable energy has fallen by half since the current UK government took office. That uncertainty increases risk and adds to cost – all of which finds its way on to the bills of businesses and households.
One way of signalling to investors that the UK is open for low-carbon business is to set a target to decarbonise the power sector by 2030. The CBI and TUC recognise this, as do industry groups and finance houses. Labour supports this target, yet the stance of the other political parties is confused. David Cameron was in favour as recently as two years ago, but now doesn’t want a target in the Energy Bill. The Energy Secretary, Ed Davey, supports a target and, along with Danny Alexander, argued for it at the Lib Dem conference in September, but refuses to put it in the bill he is responsible for. And the SNP claims to want a 2030 target, but refused to join Labour in voting for it in the Commons last year.
The UK government isn’t the only cause of uncertainty for energy investors. At Holyrood, the SNP promises big on renewable energy, but can’t answer how the necessary investment would be paid for in a separate Scotland. As SSE has made clear, Scotland needs to be part of a single energy market in Britain. While the SNP asserts this would be the case post-separation, they can not credibly answer why England and Wales would continue to provide the support for renewable investment in what would be a foreign country. At the moment the cost is borne by consumers across the whole of Britain, yet in a separate Scotland that burden would fall on Scottish households and businesses alone. The result could only be higher energy bills, lower investment or cuts in public services in Scotland to make up the shortfall.
This bill is the last chance to get right decisions that will impact on the next 30 years – without clarity and predictability, investors will back off or charge more. If we really want to minimise the impact on costs to consumers, then it is time to focus on getting this bill right for the long term. «
• Tom Greatrex is Labour & Co-op MP for Rutherglen and Hamilton West, and shadow energy minister