The government’s draft Energy Bill is an utter disaster. It reverses the course of UK energy deregulation, which cut prices, and will lead to confusion for companies and added costs for consumers.
Nigel Lawson, who as energy secretary was the architect of Britain’s energy market deregulation in the 1980s, has warned that the Bill constitutes a disastrous move towards a centrally planned energy economy, with a high level of control over which forms of energy generation will be favoured – and which will be stifled.
The government bases the case for low-carbon – and more expensive – energy in large part on the assumption that gas prices will rise significantly in the future. This argument is no longer credible in the light of the growing international abundance of shale gas, including in Britain.
North American gas prices have dropped from $15 per million British thermal units to below $2 in just 7 years. This price collapse is an indication of things to come in Europe, once its own vast shale deposits are allowed to be extracted.
The government has declared that the decarbonisation of the economy is its key priority. At a time when most other major economies are gradually returning to cheap and abundant fossil fuels, mainly in form of coal and natural gas, Britain alone seems prepared to sacrifice its economic competitiveness and recovery by opting for the most expensive energy.
In any case, the complex and inconsistent measures of the draft Energy Bill are unlikely to provide investors with the certainty they require to make substantial investments.
The proposed contracts for difference (CFDs) are extremely complex and convoluted. They are designed to guarantee profits for nuclear and renewable energy companies that invest in low-carbon power plants that would otherwise be unprofitable. Yet neither the profit guarantees offered for different technologies, nor the duration of CFDs is known. The government has not provided any numbers and price guarantees for its favoured green technologies. Investors are therefore thrown into limbo since they can’t calculate whether expensive renewables or nuclear reactors are viable and can compete with less expensive conventional power plants.
This lack of clarity will inevitably lead to constant government amendments and continual intervention, which will act as additional barriers to new entrants in the UK electricity market.
Also of concern, the Energy Bill proposes to give the secretary of state exclusive authority to offer green energy companies “letters of comfort”, promising them guaranteed profits once the specifics of CFDs are finalised and introduced.
The proposals are uneconomical. If introduced they would undermine Britain’s struggling industry and offset any other attempts to boost the economy.
Dr Benny Peiser is the director of the Global Warming Policy Foundation. Lord Lawson is its chairman.