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Death By A Thousand Regulations: The New Energy Bill

An earlier Oxford Energy Comment (Electricity Liberalisation in the UK – the end is nigh from February 2009) forecast that the liberalised UK electricity industry was likely to die not with a bang (renationalisation) but with a whimper, suffocated by an increasingly complex network of regulation. With the government’s new Energy Bill, which was published as a consultation draft on 22 May, we seem already to have reached that point.

The draft Bill’s provisions on Electricity Market Reform

The Bill is designed primarily to implement the government’s proposed electricity market reforms (EMR) (which were discussed in previous Oxford Energy Comments Return of the P-word in July 2011 and Back to the Future of December 2011). It contains provisions to implement Contracts for Differences (CfDs), the Capacity Market and so-called Investment Instruments, which are intended to prevent delays in investment as the other measures are being developed.

What is noteworthy in the Bill is that despite the words “contract” and “market”, all these provisions are designed around the same pattern – a power for the Secretary of State to make regulations by means of which obligations would be imposed on electricity generators and all suppliers. In other words, what will underpin both decarbonisation and security of supply in the future electricity industry will not be a market or private contracts but a complex set of government regulations – an ironic outcome for a process originally described as one of “deregulation”. That is, however, deliberate.

The government believes that the risks of investment (and along with them required rates of return) would otherwise be too high to be acceptable to investors and consumers; the regulated approach is designed to reduce risks and costs. But it also entails a massive and unprecedented degree of centralisation and detailed decision-making by the government.

For instance, the regulations on CfDs can specify:

  • The means by which electricity is to be generated
  • Generating capacity
  • Plant location
  • Location of supply
  • Duration of the CfD
  • Requirements to enter into agreements with third parties
  • Setting the strike price
  • Setting the market reference price
  • Setting maximum overall costs
  • Penalties, enforcement and many other administrative matters.

Similar provisions apply to the other instruments, and it is this complex web of regulation which will govern the future operation of the industry.

Full analysis