Proposals in the Government’s draft Energy Bill could impose unnecessary costs on consumers, lead to less competition and deter badly needed investment, according to MPs on the Energy and Climate Change Committee.
Initial consultation on the new ‘Contracts for Difference’ subsidy that will replace the Renewables Obligation led investors to believe that these would be backed by the state, therefore lowering the costs of capital.
But the Treasury has intervened to ensure that the contracts are not Government guaranteed. Instead, the liability will be spread across various energy companies. MPs on the committee are concerned that the plans are too complex and possibly not legally enforceable.
The committee is calling on the Government to use its AAA-credit rating to underwrite the new contracts in order to keep the costs of energy investment down for consumers.
Energy and Climate Change Committee chair Tim Yeo said: “The Government is in danger of botching its plans to boost clean energy, because the Treasury is refusing to back new contracts to deliver investment…
“…Electricity market reform is essential, but the new contracts proposed by the Government will not work for the benefit of consumers in their present form.
“The Government has a lot of work to do over the summer to make sure that the Bill is fit for purpose in the autumn and is not subject to any further delays.”
The Bill also contains a levy cap that will ration the number of contracts available, which according to the committee will create uncertainty for investors about which projects will receive support.
Tim Yeo added: “Nobody wants to see a blank cheque written out for green energy, but the Government must provide investors with more certainty about exactly how much money will be available.”
Reports have suggested that there have been huge rows between Chancellor George Osborne and Energy Secretary Ed Davey over the subsidies.
In a carefully worded statement from the Department of Energy and Climate Change, Ed Davey said: “The Energy Bill will enable us to make radical changes to the electricity market that deliver investment in secure, low carbon, affordable energy. We welcome the committee’s report and its recognition of the importance of this Bill.
“We are determined to use the pre-legislative scrutiny period to develop a robust and effective Bill with the interests of both consumers and investors at the heart. The committee’s input will be extremely valuable as we do this.”