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Government Divisions May Scare Off Green Subsidy Farmers

The Treasury’s refusal to back the energy department’s low-carbon agenda has made flagship electricity market reforms “unworkable”, “vacuous” and counterproductive, the government has been told. A draft bill designed to spur billions of pounds of spending on power sources such as wind farms and nuclear plants is so flawed it is likely to scare off the very investors it is supposed to encourage, says a scathing report from the Commons energy committee, published on Monday.

The proposed reforms will also probably consolidate the dominance of the “big six” energy companies, the MPs say, despite government pledges to do the opposite.

And they have allowed a “highly damaging” perception to grow that support for new nuclear plants will be negotiated behind closed doors.

The MPs stopped short of recommending the bill should be scrapped entirely, but listed many ”significant changes” to be made before it was introduced to parliament later this year, including amendments to the financial incentives at its centre.

However, instead of blaming only the Department of Energy and Climate Change and its secretary, Ed Davey, for producing a half-finished plan with a “dismaying” lack of detail that was complex “to the extent of being unworkable”, the committee levelled its most serious charges at the Treasury.

“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 in nuclear, wind, wave and carbon capture and storage,” said Tim Yeo, the Conservative MP chairing the committee.

This is a reference to the contentious long-term energy contracts at the heart of the bill that are supposed to drive up to £110bn of spending on clean energy infrastructure by 2020, more than double the current rate of investment.

These so-called “contracts for difference” are designed to guarantee revenues for renewable energy and nuclear power generators alike, even if market prices dip.

When the energy department first raised the plan in 2010, it suggested the contracts would be between government and industry, implying the government would underwrite the agreements.

Many energy companies welcomed this, believing it would be cheaper to finance projects underpinned by government’s AAA credit rating.

But when the draft bill came out in May 2012, it instead proposed what some said was an unprecedented system in which any liabilities were collectively borne by all energy suppliers, not the government.

The committee said this plan was “not bankable because there is genuine uncertainty about whether any contracts would be legally enforceable”, making it harder for companies to consider the investments the bill is supposed to encourage.

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