Norton Rose election briefing: climate change and energy

The law firm looks at how the way we vote could impact on policy and regulation.

Published 12th April 2010

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The outcome of the General Election will have significant implications for the legal and regulatory framework in which business operates.

This briefing identifies and explains some of the key policy proposals as they relate to energy and climate change matters, and highlights areas of both consensus and disagreement between the Labour and Conservative Parties.

It also includes a short summary of the Liberal Democrat Party’s position on energy and climate change.

Both main parties are committed to the transformation of the UK into a low carbon economy.

In addition to targeting a reduction in carbon emissions, they share a vision of greater security of energy supply through diversity, improvement of energy efficiency in UK homes and businesses, development of a “smarter” electricity grid and the promotion of the UK as a world leader in green technologies.

Experts have estimated that investment in the region of £200 billion will be required between now and 2020 in order to transform the energy sector in time to meet the Government’s climate change obligations. In addition, significant new investment will be needed to replace the 16 power stations (representing 18 GW, or about 25 per cent of the UK’s electricity generating capacity) which are scheduled to close by 2018.

It is clear that the next government will face an unparalleled challenge to deliver the necessary financial incentives and regulatory reform required to meet the ambitious decarbonisation targets set by the Climate Change Act 2008.

All participants in the energy sector, from energy generators and suppliers to private and business consumers, will need to adapt to the new market and a regulatory framework intended to promote low carbon generation of electricity and corresponding reductions in carbon emissions.

The Labour Government published its White Papers on future energy and climate change policy in July 2009, the most important for the purposes of this briefing being the UK Low Carbon Transition Plan and the UK Renewable Energy Strategy (which together will be referred to here as the 2009 Government Energy Papers). National Policy Statements (NPSs) in respect of key areas of energy policy have also been published.

The NPSs establish the national case for energy infrastructure development and set the policy framework for Infrastructure Planning Commission (IPC) decisions.

In January 2009 the Conservatives published a consultation paper, The Low Carbon Economy: security, stability and green growth (referred to here as the 2009 Conservative Paper). In March 2010, the Conservatives launched plans for what David Cameron described as the biggest shake-up of Britain’s energy policy in a generation, in a policy paper entitled Rebuilding Security (referred to here as the 2010 Conservative Paper). This sets out 12 key actions that the Conservatives propose in order to encourage the very substantial investment needed to secure energy supplies and cut greenhouse gas emissions.

UK renewable energy targets

Under the EU’s Renewable Energy Directive, the UK is legally bound to obtain 15 per cent of its energy use (heat, transport and electricity) from renewable sources by 2020. In order to meet this target, the Labour Party estimates that around 30 per cent of the UK’s electricity generation (including 2 per cent from small-scale sources), 12 per cent of its heat generation and 10 per cent of transport energy will need to come from renewables by that date. Currently, the renewables component of the energy mix in the UK is 2.25 per cent.

The Renewables Obligation

The Renewables Obligation is the main support and incentive scheme for renewable electricity projects in the UK. Introduced by the Labour Government in 2002, it places an obligation on UK suppliers of electricity to source a proportion of their electricity from renewable sources (the figure is currently 10.4 per cent and is set to increase by 1 per cent annually for the next five years).

Renewables Obligation Certificates (ROCs) are generated in respect of megawatt hours (MWh) of renewable energy generated. At the end of each one-year obligation period suppliers are required to present sufficient ROCs to meet their obligations under the Renewables Obligation. Where suppliers do not have sufficient ROCs to cover their obligation, they can buy ROCs on the market or a payment (linked to RPI) may be made into a buy-out fund.

The proceeds of the fund are then paid back to suppliers in proportion to how many ROCs they have presented. The scheme has come under criticism for lack of certainty with regard to ROC values (dependent on supply and demand in each year), the complexity of the scheme and its tendency to favour more established renewable technologies.

Labour

  • Labour has stated its intention to extend the ROC system for large-scale renewable developments from 2027 until 2037. The life of ROC support would be limited to a period of 20 years per project. However, the maximum obligation limit of 20 ROCs per 100 MWh of electricity would be removed to assist the UK to meet its Renewable Energy Directive targets.

  • In response to criticism as to the favouring of established technologies, in April 2009 Labour introduced a new system of banded ROCs. Under the new scheme, different technologies will receive different numbers of ROCs per MWh generated to reflect the cost differences (namely research and development costs) between technologies.

    • Conservatives

  • The Conservatives have released outline details of their policy in relation to support for large-scale renewable development in the 2010 Conservative Paper. The Conservatives plan to introduce a “feed-in tariff” (see below) to replace the Renewables Obligation, “providing a more stable, certain and straightforward revenue stream for new energy developments – thereby reducing investor risk and lowering the cost of capital”. Nevertheless, the 2010 Conservative Paper indicates that because unpredictable changes to regulations add to costs and uncertainty, any facilities already operating under the Renewables Obligation would be allowed to continue unaffected or, if they preferred, to transfer to a feed-in tariff.

    • Business implications

    A Conservative government may review the banding of the existing ROCs regime in order to ensure a greater amount of the pot is used to support less emerging/pre-market technologies such as offshore wind, tidal and wave power. Any potential changes in banding will be of particular interest to developers of existing large-scale renewable projects such as onshore wind farms, as this may alter the revenue which such projects can generate.

    Developers are advised to consider whether any potential changes would be sufficient to trigger “change in law” provisions under existing power purchase agreements. Developers of existing projects may take some comfort from a statement in the 2009 Conservative Paper referring to the “grandfathering” of the existing ROCs regime. This states that if any radical changes are made to the existing banding of ROCs, “our proposals will ensure that contracts already made by electricity suppliers with generating companies that have invested in renewable energy on the basis of the Renewables Obligation Certificate scheme are honoured”.

    Wind power

    In order to meet the Government’s ambitious target of generating 15 per cent of all the UK’s energy from renewables by 2020, two-thirds of this energy will need to come from wind, some 33 GW of capacity, requiring over £60 billion of investment and potentially creating 160,000 additional jobs.

    Offshore wind

    In June 2009, The Crown Estate announced the commencement of the Round Three Licensing programme for the delivery of new offshore wind farm sites with a capacity of up to 25 GW by 2020, creating one of the world’s largest offshore wind markets and a great opportunity for UK business.

    In recent months, talks have been taking place between the Government and wind energy manufacturers to establish a manufacturing base in the UK, although Vestas, the world’s largest manufacturer, has confirmed that it will not be investing in production in the UK until at least until 2014, at which point it would consider the opportunities being presented by the UK offshore wind sector.5 The Marine and Coastal Access Act is also intended to facilitate marine power development and expansion.

  • The Labour Government has created an Office for Renewable Energy Deployment (ORED) to help deliver an eight-fold increase in the use of renewable energy by 2020. ORED, which is part of the Department for Energy and Climate Change (DECC), will seek to speed up the deployment of established renewable energy technologies to meet our targets and facilitate investment in renewable energy and the supply chain to maximise the economic opportunity presented by the UK renewables target.

  • The Government will increase the number of ROCs per MWh from 1.5 to 2 for offshore projects which receive full accreditation between 1 April 2010 and 31 March 2014.
  • In the 2010 Conservative Paper, the Conservatives highlight their support for the National Grid’s proposal for a shared offshore transmission network to make Britain a priority destination for investment in offshore wind and marine renewables. This is consistent with provisions in the Renewable Energy Directive which allows EU Member States to satisfy their obligations with projects based in other EU Member States.

    • Onshore wind

    Reports suggest that the UK currently has 2.6 GW of installed onshore large-scale wind generating capacity with another 0.8 GW under construction. A further 3.4 GW of large-scale onshore wind generating capacity has received planning permission but has not begun construction and 7.1 GW is currently awaiting planning permission.

    Labour

  • The Labour Government’s Renewable Energy Strategy presented an illustrative breakdown of the final shares of different types of renewables technology in 2020. This envisages that by 2020 nearly 15 GW of total capacity could come from onshore wind. Although this is not a firm target, it appears clear that the Labour Government envisages a continuing role for the deployment of significant amounts of onshore wind technology.

    • Conservatives

  • In the 2010 Conservative Paper, the Conservatives indicate that they will “help take the poison out of the planning battles surrounding onshore wind by promoting community ownership of appropriately sited wind farms, allowing host communities to retain the additional business rates and providing electricity to local residents at discounted tariffs”.

    • Business implications

    Developers of onshore wind will welcome the Conservatives’ apparently pragmatic approach, but may have concerns about the additional requirements in respect of discounted tariffs. Offshore wind developers will welcome both parties’ commitment to provide government support to expand the offshore grid and to provide greater incentives for investment in offshore wind.

    In relation to the investment that will be needed to develop offshore wind, neither of the main parties has provided detailed policy proposals on how they intend to attract necessary investment in infrastructure and the supply chain, for example, to speed up the construction of additional and larger vessels dedicated to the installation of offshore wind farms.

    Marine power

    The UK is sitting on the biggest source of marine energy in Europe. However, funding and therefore development have lagged significantly behind other forms of renewable energy.

    Labour

  • Labour intends to increase investment up to £60 million to accelerate the development of wave and tidal generation.
  • On 3 February 2010, the Carbon Trust announced the long-anticipated award of its £22 million Marine Renewables Proving Fund (MRPF) to six marine energy firms to help them prepare their wave and tidal energy systems for the UK’s coast. The Severn Tidal Power Feasibility Study is under way, which will enable the Government to decide whether and on what terms a tidal range power scheme in the Severn Estuary could be supported.

    • Conservatives

  • The Conservatives have indicated that marine park facilities will be developed alongside the offshore grid to accelerate the development and deployment of wave and tidal power systems.

    • Business implications

    Both Labour and the Conservatives see tidal and wave power as enormous untapped natural resources, capable of providing a sustainable source of energy to help the UK meet its longer-term climate and energy goals as well as presenting a significant economic opportunity for the UK given its current position as the world leader in this technology.

    Both major parties would invest in the development of offshore infrastructure and new marine technologies; however, given predicted levels of future funding, it may be difficult for marine energy to become a commercially viable renewable option in the short term.

    Carbon capture and storage (CCS)

    CCS refers to the capture of carbon dioxide from emissions from power plants and other industrial sources, transporting it, usually via pipelines, to storage points and storing it safely in geological sites such as depleted oil and gas fields. The feasibility of each individual element of CCS technology has been demonstrated, but the integration and scale-up needed for routine application to large-scale power generation will require significant research and demonstration. The UK is seen by many experts as already possessing the technical expertise, historical industry base and close proximity to geological sites to make it a world leader in CCS.

    Labour

  • Labour has announced its intention to host “up to four” commercial-scale CCS demonstrations. This fits into a wider EU plan to develop 12 CCS demonstration projects by 2015 and the G8’s plan of launching 20 large-scale demonstration projects globally by 2010. The Government has announced the implementation of a levy on electricity suppliers in order to finance CCS development in the UK.
  • Labour intends that any new coal power station must be designed to capture, transport and store at least 20 million tonnes of CO² emitted from at least 300 MW net (400 MW gross) of its capacity and must be capable of being retrofitted with CCS.
  • All combustion plants over 300MW must be built ready to fit CCS technology in order to facilitate its deployment once it has been proven.

    • Conservatives

  • The Conservatives are also strong advocates of the potential of CCS and reaffirmed this commitment in the 2010 Conservative Paper. The Shadow Secretary of State for Energy and Climate Change, Greg Clark, has said that the carbon storage technology is a priority for action by a Conservative government. If elected, a Conservative government would immediately “authorise the deployment of 5 GW of clean coal capacity equipped from the outset with CCS”. The Conservatives plan to expand the Government’s current plans in order to demonstrate “at least four” CCS facilities and have indicated that their preference is for the necessary funds to be raised out of receipts from the third and subsequent phases of the EU Emissions Trading System.
  • The Conservatives would also introduce an Emissions Performance Standard for coal-fired power plants which would require carbon emissions to be no higher than a certain level (this would be similar to the California Greenhouse Gas Emission Performance Standard introduced by Governor Schwarzenegger in 2007). Any new coal-fired power plants which may be brought forward by private industry would also be developed to incorporate CCS technology on a scale that is capable of limiting carbon emissions in line with the Emissions Performance Standard. CCS pipelines would be planned and located where the greatest capacity per growth can be provided at the lowest cost.

    • Business implications

    The energy industry has been critical to date of the Labour Government’s slow pace of progress in implementing the first commercial-scale CCS projects. Both main parties have expressed their enthusiasm for large-scale CCS projects.

    Some potential developers have raised concerns over development of the transportation and storage stages of the process and the need for clarity on the Government’s contingency scheme in the event that CCS is not viable.

    Whoever forms the next government will need to act quickly and decisively to deliver the right incentives for potential developers to ensure that the UK capitalises on its strong starting position to demonstrate the viability of the technology.

    Nuclear

    In 1997, 26 per cent of the UK’s electricity came from nuclear power. In the past 13 years – the period of the Labour Government – that figure has halved and is likely to fall further in the short term as more nuclear power stations are decommissioned. After a decade-long period of consultative review the Government is now committed to increasing nuclear power’s contribution to the UK’s energy mix.

    Labour

  • The Labour Government has outlined its belief that nuclear power is a low carbon, economic, safe and dependable supply source which will increase diversity of energy supply. Central to the argument is that, without nuclear power, the UK cannot hope to meet its carbon emission reduction targets.
  • Working on the assumption that 60 GWh of net new generation capacity will be required by 2025, the Government has stated its clear objective that as much as possible of the new non-renewable capacity (expected to be around 25 GW) is achieved by the development of new nuclear power stations. Ten sites have been identified as suitable for the development of new nuclear power stations.

    • Conservatives

  • The Conservatives are in favour of increasing the UK’s nuclear power capacity and broadly support Labour’s proposals to streamline the planning process for the construction of new nuclear power plants. As stated in the 2010 Conservative Paper, the Conservatives will support the “long overdue National Planning Statements” on energy infrastructure, which are of critical importance to nuclear power and will protect it against Judicial Review of planning decisions and the further delays that causes. The carbon floor price (see below) will also provide a reliable signal for investment in nuclear power.

    • Business implications

    In response to the Government’s policies on nuclear power, three consortia of leading energy companies7 have announced their intention to develop around 16 GW of new nuclear power generation capacity by the end of 2025.

    EDF of France, which hopes to build the first of a new generation of nuclear plants in Britain, particularly welcomes the Conservatives’ aim to support the price of carbon (see below). Given that the Conservatives are generally in agreement with the Government on this issue it is likely that, barring a hung parliament, steps will be taken towards the construction of a new generation of nuclear power plants in the UK regardless of which party wins the General Election.

    Gas storage

    The UK is short of gas storage capacity. North Sea gas production is declining, there are concerns about security of foreign supply and demand for gas is rising. Compared to its European neighbours, the UK has little existing gas storage capacity.

    As a result of these and other factors, gas price volatility has increased and with it the desirability of, and predicted returns from, gas storage projects. The deficiency in the UK’s gas storage capacity was highlighted recently when National Grid PLC was forced to cut off gas supplies to several large industrial users.

    Labour

  • The Labour Government maintains that it has implemented crucial reforms to the Energy Act 2008 and Planning Act 2008. On 15 February 2010, the Government issued the first licence under a new storage regime. The independent Gateway Project, located in the Irish Sea, will create 20 new salt caverns, each one the size of the Royal Albert Hall (increasing the UK’s gas storage capacity by 30 per cent), and is due to start commercial operation in 2014.

    • Conservatives

  • The Conservative Party blames the planning processes and Labour indecision for the UK’s gas storage deficiencies.
  • The Conservatives advocate that Britain must take full advantage of a worldwide market that has been transformed by the globalising impact of the LNG industry and the availability of shale gas. While stressing the importance of diversity of energy supply sources, the Conservatives also insist on the necessity of strategic gas storage or other equivalent security measures to guarantee supplies. The 2010 Conservative Paper indicates that this would take the form of an obligation on gas suppliers which could be fulfilled through a variety of means, including storage facilities, contracted demand-side response and proven long-term supply contracts, so long as suppliers provide confidence that the UK gas system can withstand a sustained disruption of external supplies during the winter period of peak consumption.

    • Business implications

    Some organisations have confirmed their opposition to government interference, stating that “a move to strategic storage could completely undermine the economics” of those commercial storage projects currently in development.

    However, not all potential storage developers are against some form of government intervention and some have suggested imposing a storage obligation on utilities.

    Climate change levy /Carbon floor price

    The climate change levy (CCL) was introduced by the Labour Government in 2001 to encourage the business and public sectors to improve energy efficiency and reduce emissions of greenhouse gases through a price-based signal on energy usage.

    The CCL is chargeable on the industrial and commercial supply of certain taxable commodities (including electricity, natural gas supplied by a gas utility and coal). All revenue raised through the CCL is recycled back to business through a 0.3 per cent cut in employers’ national insurance contributions and support for energy efficiency and low carbon technologies.

    The CCL has attracted criticism for being too complicated and for failing to distinguish between energy-intensive businesses which are already committed to cutting energy bills and firms in the commercial sector for which energy is such a small relative cost that an extra 5 per cent levy makes no discernible difference.

    Labour

  • Labour has so far resisted calls to reform the CCL and it is likely that the CCL will continue in its present form if Labour wins the General Election.

    • Conservatives

  • In the 2010 Conservative Paper, the Conservatives set out plans to reform the CCL to provide a “floor price” for carbon to provide incentives for investment in low carbon energy. The Conservatives believe that the CCL is misleadingly named because it is a tax, not on the carbon content of energy, but on the amount of energy supplied. They propose a tax on power generators’ carbon emissions that would be paid if the carbon price fell below a set level. The floor price would be set at a low level, but rise towards the end of the decade when the first new nuclear plant is expected to open. If the EU ETS (Emissions Trading Scheme) carbon price is at or above the level of the levy, no net charge would be payable. If it is below the level of the levy, the difference would be payable to the Treasury.

    • Business implications

    Proponents of CCS and nuclear development have long suggested the need for a carbon floor price. It is likely to be favourable to those seeking to invest in large scale low-carbon development. Other industry players may be less supportive of the Conservatives’ proposal.

    Feed-in tariffs (FITs) and Renewable Heat Initiative (RHI)

    The Renewables Obligation, outlined above, was not originally designed with small-scale projects in mind and has been criticised for being difficult to understand and navigate for those not familiar with the electricity market, and the very small scales the returns offered were not sufficient to justify investment.

    In response to such criticism, the Labour Government has introduced feed-in tariffs (FITs) and is consulting on the Renewable Heat Initiative (RHI) scheme to work alongside the Renewables Obligation. The Renewables Obligation will remain the primary mechanism to incentivise deployment of large-scale renewable electricity generation.

    FITs

    A feed-in tariff works by guaranteeing a long-term premium payment for electricity generated from low carbon sources and fed into the grid. The Government fixes the level of the tariff to be paid for each renewable technology and sets the length of contract.

    Labour

  • In February 2010, the Labour Government published long-awaited details of FITs for small-scale low carbon electricity generation, which will start from 1 April 2010.
  • Small-scale low carbon electricity technologies eligible for FITs include wind, solar photovoltaic, hydro, anaerobic digestion and domestic-scale micro combined heat and power (microCHP) (with a capacity of 2 kW or less). The scheme does not support solid or liquid biomass technologies at this point, although these will continue to be supported under the Renewables Obligation at all scales.
  • The FITs scheme consists of two elements of payment, made to generators and paid for by licensed electricity suppliers. The first element is a generation tariff that differs by technology type and scale, and will be paid for every kilowatt hour (kWh) of electricity generated and metered by a generator. This generation tariff will be paid regardless of whether the electricity is used onsite or exported to the local electricity network.
  • The second element is an export tariff which will either be metered and paid as a guaranteed amount that generators are eligible for, or, in the case of very small generation, be assumed to be a proportion of the generation in any period without the requirement of additional metering.
  • Therefore a FITs generator may use electricity generated on site, thus avoiding having to purchase that electricity from their supplier, or may export their generation directly to the grid, or (in many cases) some combination of the two. For exported electricity, they can either opt to receive a guaranteed payment of 3p/kWh exported, or may opt out of the export tariff and sell their electricity on the open market.

    • Conservatives

  • In the 2010 Conservative Paper, the Conservatives indicate that they are committed to the introduction of feed-in tariffs to promote small-scale renewables and the capture of waste heat (see below).

    • RHI

    Heat generated from renewable sources accounts for approximately 1 per cent of total heat demand. This may need to rise to 12 per cent to meet the UK’s binding EU targets. In order to expand the use of renewable heat to meet these targets, the next government will need to provide some form of financial assistance given the current abundance of cheaper heat sources.

    Labour

  • On 1 February 2010, the Labour Government launched the consultation on the RHI scheme, which it aims to introduce in April 2011.
  • The Government proposes that the scheme should support a range of technologies, including air and ground-source heat pumps (and other geothermal energy), solar thermal, biomass boilers, renewable combined heat and power (CHP), use of biogas and bioliquids and the injection of biomethane into the natural gas grid. The scheme is also intended to support heating at all scales, including households, businesses, offices, public sector buildings and industrial processes in large factories.
  • Tariff levels have been calculated to bridge the financial gap between the cost of conventional and renewable heat systems at all scales, with additional compensation for certain technologies for an element of the non-financial cost and a rate of return of 12 per cent on the additional cost of renewables, with 6 per cent for solar thermal.
  • The Energy Act 2008 provides the statutory powers for a renewable heat incentive scheme to be introduced across England, Wales and Scotland. The detailed legal framework will be set out in secondary legislation.

    • Conservatives

  • The Conservatives will give local authorities the power to identify areas that would be suitable for district heating schemes and allow them to use them for such schemes. They will promote the use of sustainably sourced fuels and waste products, rather than feedstocks where “production damages the environment”.

    • Business implications

    The global financial crisis has led to volatility in carbon and energy prices, tighter finance conditions and exchange rate fluctuations, all of which have eroded investor confidence in future renewables and related infrastructure investment.

    In order to mitigate the impact of these factors, the next government will have to provide greater certainty and protection for developers (in particular of small to medium-sized low carbon projects, both centralised and decentralised) and ensure that a supply chain is delivered to meet the demanding levels of renewables built.

    Green investment bank

    Policy-makers have grown increasingly concerned that companies in the renewables sector struggle to fund early-stage project developement even though the worst of the credit crunch is over and the banking system has stabilized.

    With the idea of creating a single institution to handle government funding and secure private investment, both Labour and the Conservatives have shown commitment to the establishment of a “green investment bank” to mobilise investment for green businesses.

    Labour

  • In March 2010, Labour unveiled in its Budget a £2 billion ($3 billion) “green” investment bank fund for low-carbon industries including, particularly, offshore wind farm investment. Wind farms alone can look forward to £16 million worth of investment. Labour’s green bank will be half-funded from government asset sales, such as the Channel Tunnel Rail Link, with the remainder being raised from private investors.

    • Conservatives

  • On the Conservatives side, creation of a green investment bank was supported in the 2010 Conservatives Paper. Their policy includes establishing, in conjunction with the Treasury, Green ISAs and creating new Green Bonds designed to leverage private sector finance and allow retail and institutional investor to participate more easily in the major talk of building clean energy systems. The Conservatives also believe that the green investment bank should act as an intermediary to help attract and package investment opportunities in forms acceptable to investors.

    • Business implications

    The creation of a green investment bank will help to boost the UK’s renewable energy production. If Labour continues in government, this new fund should help to unlock lending, particularly for offshore wind projects.

    However, compared with the £200 billion of investment considered necessary over the next decade to meet the government’s carbon reduction goals, the green investment bank pledge is relatively small-scale.

    Other policies on energy

    Conservatives

    The 2010 Conservative Paper sets out a number of other key policy initiatives which are aimed at addressing reform of British energy policy. These include ensuring that Britain has a clear, consistent and stable energy policy and establishing a “capacity guarantee” in the electricity market.

    Stable energy policy

    The Conservatives underline their belief that Britain needs an energy policy that is clear, consistent and stable, partly in order to reduce the cost of investment. They are keen that Ministers, not quangos, advisory bodies or regulators, should be unambiguously responsible for determining policy and that policy should be implemented swiftly.

    In this vein, the Conservatives propose that the Department of Energy and Climate Change must be made clearly responsible for determining energy policy, an Annual Energy Statement will be made to Parliament in the place of “inconclusive reviews and consultations” and the energy regulator OFGEM will be reformed to focus on executing, not developing, policy. Other (unnamed) delivery bodies will be abolished and the Green Investment Bank will streamline access to finance.

    Capacity guarantee

    The Conservatives also believe that developers should be incentivised to build enough generating capacity to provide a reliable electricity supply at times of peak demand. They criticise the new electricity trading arrangements brought in by Labour in 2001 and 2005, which abolish capacity payments and focus on “just in time” electricity supply.

    They believe that the energy regulator Ofgem should have a similar role to that of a central bank, including:

  • monitoring and assessing the adequacy of capacity margins, with the power to secure the new capacity required, either by a requirement on suppliers to have sufficient contracted capacity available, or by arranging auctions to fill any missing capacity
  • enabling open competition and transparent cost comparison between alternative ways of meeting capacity requirements (not only peaking plant, but also demand-side response measures, interconnection with neighbouring grids and storage technologies).

    • The regulator would be able to make long-term commitments on behalf of consumers to provide certainty of payment for new capacity. The Conservatives believe that this would allow investments to be planned in advance (thereby assuring security of supply) and at low risk (thereby cutting costs).

    Business implications

    Although business is likely to appreciate a clear, consistent and stable policy regime, it remains to be seen whether the proposed Annual Energy Statement will be able to fully replace the role of “inconclusive reviews and consultations”.

    It seems highly improbable that such consultations will be able to be fully replaced, particularly in view of the need to put in place regimes in respect of, for example, CCS, which is a constantly evolving area and which requires a certain degree of ongoing regulatory flexibility and formal interaction with interested parties.

    The Conservatives’ plans to reallocate regulatory and policy powers and functions also seem to contrast with their desire to provide regulatory certainty by way of providing capacity guarantees, at least in the short term.

    However, there are likely to be industry players keen to invest in new build who will favour the introduction of capacity guarantees, which may avoid the current situation where generators are not incentivised to invest in new assets until demand for new capacity is very clear.

    The interaction of this policy and the proposed reform of the CCL (see above), which has a similar purpose in respect of the development of new renewable generation, will have to be carefully considered.

    Liberal Democrats policy

    The Liberal Democrats have been clear that the expansion of green technology is at the heart of their Election message. On 11 January 2010 they cited creating a “fair and sustainable economy” as one of their four key Election policies, within which growth should come in a way that creates lasting jobs through green, non-nuclear technology.

    They are broadly aligned to Conservative energy policies, particularly in seeking changes to the Climate Change Levy and the Renewables Obligation and in what form these policies should be replaced. However, they regard themselves as the “greenest” of the three largest parties.

  • Offshore wind: The Liberal Democrats have pledged to provide investment to upgrade disused shipyards into wind turbine production centres, creating 12,000 jobs in developing the ports and 45,000 in manufacturing, constructing and supplying the turbines. A further £100 million would be invested in training and testing facilities – including universities with specialist engineering research units such as Loughborough, Durham and Newcastle.
  • Carbon capture and storage: Although the Liberal Democrats have pledged to prioritise the funding of CCS research, they support the use of CCS as a transitional measure only. They support the Conservatives’ proposals for a UK Emissions Performance Standard for coal-fired plants and their requirement that all new power plants must incorporate CCS technology on a scale that is capable of limiting carbon emissions in line with such an Emissions Performance Standard.
  • Nuclear: The Liberal Democrats strongly oppose the building of new nuclear power plants in the UK. Citing reasons of cost, toxic waste and hindering of the development of Britain’s renewable energy resources, their “No to Nuclear” message is central to their energy policy.
  • Climate Change Levy: The Liberal Democrats have strongly indicated their intention to replace the CCL with a tax on carbon emitters similar to that proposed by the Conservatives. The exact form of this tax has not yet been defined.
  • Feed-in tariffs: The Liberal Democrats were critical of Labour’s recently announced FITs scheme and have indicated that they would implement a more ambitious scheme with a higher tariff in order to encourage greater devolution of low carbon and renewable power generating capabilities to local communities and individuals.

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