The energy and climate change committee stopped short of telling the department of energy and climate change to scrap the Bill. But it suggested some key parts should be radically altered if not ditched altogether. It also called for government to show its master plan in terms of specific outcomes.
If contracts for difference (CfDs), which give low carbon and renewable developers a guaranteed price for power, were not simplified they would not be bankable and were therefore unworkable, said the Committee.
A single counterparty, underwritten by government was the best way to deliver investor confidence and reduced costs, said the Committee. If government does not underwrite the contracts, Decc should produce an impact assessment on what that would mean for cost of capital, said the report.
The Levy Control Framework, which limits the number of contracts that can be awarded, must be based around meeting legally binding carbon targets, not vice versa, urged the MPs. They said they considered Energy Secretary Ed Davey’s statements that legal obligations would be met as “cast iron” commitments that that would be the case. They also want details of both CfD structure and the capacity mechanism that can be scrutinised by Parliament before the Bill is passed.
To give developers certainty that their projects will not be left without a contract if the budget is used up, the Committee recommended a two-stage CfD registration process, so that developers are given a guarantee and a window to complete their projects.
Whatever alterations are proposed, the Committee said Decc should reword the draft Bill’s title to delete the words ‘contracts for difference’ (CfDs) and replace them with ‘support mechanisms’.
The capacity mechanism, and lack of detail as to how it would work, could create exactly the problem it sought to solve by creating an investment hiatus, said the Committee. It urged Decc to work out what it was trying to address. The draft Bill was also “fundamentally flawed by the lack of consideration given to demand-side measures” stated the report. Throwing in measures last minute was likely to limit what demand side response could achieve. Instead, the Committee said the Bill should be amended to include powers for the Secretary of State to introduce an energy efficiency feed in tariff (Fit).
The Committee also warned against giving a private company, National Grid, a role in the capacity mechanism and the contracts for difference, as it was likely to increase costs and raise conflicts of interest.
As Scotland’s first minister today announced Scotland would not cut onshore wind subsidies by more than 10 per cent, the Committee was scathing of the government’s decision to delay an announcement of future subsidy levels under the renewables obligation, which they said should also be kept open to new entrants beyond 2017. The Committee added that Decc should consider raising the limit on renewables projects under the Feed in tariff scheme from 5MW to 50MW so that smaller companies and co-operatives are not squeezed out of the market.
Despite its many concerns, the Committee said it was “not impossible” to knock the plans into something workable. In the meantime, the Committee called for an independent body to scrutinise the comfort arrangements being discussed between EDF, Centrica and government over guaranteed prices for new nuclear. It suggested the Committee on Climate Change play a role.
Further reading:
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