Energy Bill

Energy secretary Ed Davey claimed today that the Coalition's electricity market reform package - and its legislation - was "ambitious, deliverable and essential". Political editor Roger Milne reports from Whitehall.

But whether the details will provide energy companies and the market with sufficient certainty remains a very moot point.

Ministers conceded that discussions with Brussels to ensure the measures do not fall foul of EU state aid rules are at "an early stage". Davey expressly denied that the design of the Feed in Tariff with Contract for Differences (CfD) and capacity mechanism regimes was driven by the need to satisfy the bloc's regulations.

Ministers and officials also made it clear that much key detail remains to be settled. The Department of Energy and Climate Change (Decc) stressed that it still had an open mind on whether there should be a single counter-party or a scheme with a multiple number. National Grid as system operator will come up with draft strike prices over the next few months which will be consulted on but ultimately determined by the department.

The capacity mechanism is an area where more work and further consultation is planned. Exactly how demand side measures - and which - will be accommodated is still up in the air.

Also on the list of matters to be settled is how independent generators will fit into the new arrangements. Consultation on that was launched this week.

Some aspects of the timetable are now clearer, though. The draft Energy Bill will be consulted on over the summer and will be the subject of an inquiry by MPs, courtesy of the Commons Energy and Climate Change Committee. Their recommendations will feed into the full Bill which will be published in the autumn, conceivably by the end of October for parliamentary scrutiny. Ministers expect the legislation will gain Royal Assent by the summer of 2013. The measures themselves will be implemented over the following three years.

During the period up to 2017 the current arrangements for the Renewables Obligation will sit alongside new CfD prices, which will be set administratively (i.e. by Decc after consultation with National Grid as the administrator). The first capacity auctions could kick-in during this stage.

Decc envisages a second stage between 2017 and the 2020s which should see the capacity market becoming fully operational and some technology-specific auctions.

In the third stage (also during the 2020s) there will be a move to technology-neutral auctions. In the fourth stage (late 2020s and beyond) the expectation is that technologies will be mature enough and the carbon price high enough to "allow all generators to compete without intervention".

Davey emphasised on Tuesday that his department would retain control of policy and decisions, including CfD strike prices during administrative price setting, as well as any security of supply objectives and auction volumes during competitive price setting.

Ofgem's role in all this has yet to be fully determined. Ministers have promised further details on the respective roles and responsibilities of the Government, National Grid and the regulator later this autumn. At this stage Ofgem's main role appears to rest with regulating National Grid as system operator and overseeing its performance in delivering the CfD and capacity markets.

There will be transitional arrangements and so-called comfort arrangements as the new regimes fire-up. At this juncture these appear to consist chiefly of companies going into the department for discussions with officials.

Other elements of the Bill
Although the Energy Bill mainly contains the measures required to underpin the EMR package there are other important elements. It includes new powers to spell out the roles and responsibilities of the Secretary of State and Ofgem, establish the new Office of Nuclear Regulation (ONR) and allows for the transmission of electricity without a licence by a person who participates in offshore transmission during a commissioning period in certain circumstances. Also in the bill are provisions to allow the sale of the Ministry of Defence pipeline network that supplies aviation fuel to airbases and some airports.


23rd May, 2012

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