The bosses of the Big Six energy companies have slammed the complexity and pace of energy reforms being proposed by the government for slowing the rate of investment in new plant which the country so desperately needs.
They were speaking to MPs in the Energy and Climate Change Committee during its first evidence session on the Draft Energy Bill, which contains the government's proposals for electricity market reform and Contracts for Difference (CFDs). MPs want to know if these financial tools are effective particularly in supporting renewable energy and carbon capture and storage (CCS).
Keith Anderson, CEO of ScottishPower, told MPs that “this country used to be a fantastic place to invest in for energy because everyone had faith and trust that it was done in an evidence-based way". But this is no longer the case, and it is causing uncertainty and a hiatus in investment.
He spoke of the “massive amount of work" that was done in providing evidence during the lengthy consultation on the banding review for the Renewables Obligation last year, that came up with a lot of recommendations for the future.
“But then, since October, what we've seen is an awful lot of noise from politicians and in the media, and speculation about arguments between government departments that there will be political influence over the outcome of that consultation that it is not evidence-based, and this damages investor confidence."
Anderson called for more clarity, speed and confidence to be given by the Government. “There's a huge opportunity now for the UK to go out and grab a huge proportion of investment for renewable energy. Given the slowdown in our economy and in other countries I think right now is the time for the UK to put in place a very clear, long-term and robust framework," which should be “used to regenerate the economy".
However, he said that there is still a lot more detail required in the Bill, particularly on Contracts for Difference, and this was prolonging uncertainty amongst investors.
John McElroy, director of policy and public affairs at RWE Npower, agreed that as it stands, the Bill will not provide the confidence that investors need and requires a lot more work. "At the very least investors need to know how the capacity mechanism will work and when it will be triggered," he said.
“What we really want to see is the timetable moving forward and the government getting on with it," added Sara Vaughan, director of regulation and energy policy at E.ON. "There is already some slippage because we expected the bill to be introduced in May and it is now not going to be introduced till probably the end of the year," which will delay the secondary legislation as well “and that causes concern".
On CCS, Ian Marchant, CEO of SSE, said frankly: “We do not know that this technology will work" and so developers "crucially need capital support at this stage to move beyond the demonstration phase".
He said that Government energy policy is predicated on assuming that it will work, but this is currently unknown.
Anderson said finding investment for wind farms was more difficult in the UK than abroad because planning permission takes longer, land rental is more expensive and development costs are higher than elsewhere.
On the level of support for onshore wind, Marchant agreed that this should come down as costs reduce, and said that he doesn't get involved in bilateral discussions about the level of support. He said that he didn't like the way that discussions on nuclear and renewables were being conflated. “I do not believe that the returns being made on renewables are excessive" he added.
The Energy and Climate Change Committee, which today is on a fact-finding mission to the London Array and Gunfleet Sands Windfarms, has issued a call for evidence from the public on the economics of wind power, to be submitted by 27 June; there is to be a hearing on 10 July.
Tim Yeo MP, Chair of the Committee, said: “Government policy on wind power should be based on sound economics and engineering, not political pressure from a small vocal minority – whether that be green campaigners or anti-wind protestors.
“In this session we want to cut through all the hot air talked about wind power and examine whether the economics really add up. Wind farms are over 40 times less polluting than gas burning power stations - per unit of energy produced - but there are concerns about the costs to consumers.”
All the energy bosses agreed that they were in favour of Contracts for Difference because, unlike the Renewables Obligation, although it had many advantages, they will be able to support the massive increase in investment in renewable energy that is required in the coming years.
John McElroy agreed the Electricity Market Reform was too complex, and was taking too long to understand and finalise.
Sarwjit Sambhi, director, finance and strategy at Centrica, owners of British Gas, said that the capacity payment was good for gas-fired generation, which was required in the medium-term.
Marchant criticised the government for trying to disguise their support for nuclear power, in doing so coming up against state aid rules, and called for “an honest and open discussion about whether the country needs it and what is the cheapest way of doing it as opposed to disguising it in a very complex set of proposals, so it actually doesn't have negative connotations."
Marchant described investment in wind power as much more manageable than in nuclear power, and preferable because it has a period of clean construction of two or three years. “Nuclear is a completely different animal. You have billions of pounds of investment and a build time of seven to ten years."
The MPs were also questioning whether there was enough provision for reducing demand for electricity in the Bill and the level of and exemptions to the proposed Emissions Performance Standard.
Story: David Thorpe, News Editor