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The sun is setting on the UK's liberalised electricity market, with government interventions to ensure sufficient low-carbon energy will be generated to meet targets for cuts in greenhouse gas emissions. Photograph: Anthony Devlin/PA
This live blog has now ended. You jump straight to my sum up, if you like, or just read through in chronological order..2.54pm: At 3.30pm today, the UK's secretary of state for energy and climate change, Chris Huhne, is going to set out how he thinks the nation can meet the three "Cs" of energy in the 21st century: carbon, cost and continuity of supply. The challenge, in other words, is to cut the greenhouse gas emissions that stoke global warming, while keeping the lights on at a price people can afford. It's the biggest reform in quarter of a century, and will reverse the free market set up by Margaret Thatcher, which has failed to invest for the future.
In my preview, I wrote that the government decided long ago that new nuclear power stations are crucial to meeting the "trilemma" of the 3 Cs, and all sides of the debate agree this is the central aim of the complex measures set out in the white paper. The details are pretty technical – contracts for difference and so on – but this piece walks you through the labyrinth.
The key questions to be answered are, I think:
• What will it cost energy customers? The UK's creaking energy infrastructure and global fuel prices mean that energy prices are going up whether it's coal, gas, oil, nuclear or renewables. But the higher the cost, the more hard-pressed consumers will object, making it less likely future ministers will stick to the plans.
• Are there incentives for energy efficiency? Crucial, as reducing demand is very often cheaper than increasing supply, to cutting waste will help keep bills down.
• Is there help for new entrants to the market? The UK's big six supply 99% of the energy. Huhne has promised to help break this up, but how? Again it is important for cost: more competition means lower prices.
• Which of the UK's big six energy companies is happy? This will tell you which electricity generation technologies got the best deal. EDF back nuclear, SSE back renewables.
• Is there any obligation to build renewables? If not, gas looks an easier, cheaper alternative.
I'll post some thoughts from elsewhere in the run up to Huhne's speech in the House of Commons. But please let me know your thoughts in the comments below, or via Twitter. I am @dpcarrington.
3.13pm: Let's get straight into issue likely to create the most sparks: cost. Chris Huhne says the changes will keep bills lower, yes lower, than they otherwise would be:
These reforms will secure our energy future. They will get us off the fossil fuel hook and on to clean, green and secure energy. Crucially, they will keep bills lower than they would be if we stuck with the existing arrangements.
Here's DECC's workings:
If we were to leave the market as it is now, we estimate electricity bills will be around £200 higher in 2030 compared with today's average annual household bill (about £500). But if we act now - reform the market and get the secure clean energy we need more cost-effectively - we estimate we can limit this increase to £160. This is £40 lower than it would otherwise be.
But Consumer Focus, the UK's statutory consumer champion, is warning that homeowners won't sign blank cheques:
Keeping the lights on and tackling climate change is in consumers' long term interests. However, consumers can't be expected to write a blank cheque to decarbonise electricity generation.
If today's policy is to be the least worse option for consumers it needs to be done in the most cost effective way. In order to deliver value for money and minimise the impact on consumers, Government must ensure that: consumers on the lowest incomes are protected; a step change in energy efficiency is delivered; the energy market becomes more competitive.
3.30pm: Fiona Harvey, who is holed up in the DECC bunker reading the white paper, tells me Huhne's speech is delayed by 10 minutes.
So I have time for this political take from Matthew Spencer, head of the Green Alliance. He says the EMR white paper will be muddled because the government still has not decided on a clear growth strategy. The "trolls of the treasury" back deregulation, a war on red tape, and accept plans to cut carbon only on sufferance. Those backing green growth, like Huhne, see smart regulation as opening up the markets of the future.
Last year the UK plummeted from 5th to 13th in the clean-tech investor rankings and there is nothing in this week's energy policy paper that will reverse that trend. Our competitive position will continue to slide until the coalition come to a common view about the role of green growth in the UK's economic recovery.
3.43pm: Energy demand reduction may not get high priority in the white paper, but plenty of people think it's key. Nick Mabey, Chief Executive of E3G (and businesses too) say:
Making energy demand reduction a priority is a huge and necessary strategic shift. For 20 years the design of the electricity market has effectively blocked investment in the demand side. This has raised costs to consumers and increased our exposure to volatile global energy markets.
It's not easy given that the big six companies that have the closest relationships with consumers all make money from selling energy, not saving it.
4.06pm: Huhne is having to wait until urgent questions on the Southern Cross care home collapse are answered. In the meantime, my colleague Fiona Harvey notes how Decc have stopped talking about the £200bn that Ofgem estimated was needed in investment in energy infrastructure by 2020. Instead, they have been briefing a figure of £110bn.
But the smaller figure is for new electricity generation alone: the larger figure includes all energy infrastructure needed, such as gas and grids.
4.26pm: Huhne has started speaking. His opener is that current levels of investment in electricity have to double to total £110bn by 2020.
Bills are going up: "We will have to pay to secure clean, low-energy". But he warns against locking in to high-carbon energy, which would cost more in the long term.
4.29pm: Huhne rolls through the four measures: carbon floor price, capacity payment, emissions performance standard and contracts for difference. Then he adds a fifth: "transitional arrangements to make sure there is no hiatus in investment". That's better late than never.
Meg Hillier, Labour's shadow secretary of state for energy and climate change, welcomes the reforms, then teases Huhne for agreeing with his predecessor - Ed Miliband - and about the U-turn on solar feed-in-tariffs. She says Decc is run "on remote control" from the Treasury. Bit unfair that, I think, Huhne's stood up for green growth and won.
4.35pm: Fiona Harvey, who has until now been locked in DECC reading the Electricity market reform white paper, emails some early thoughts from the bunker:
As Huhne spoke, note how little he mentions climate change and emissions and how often he talks about keeping the lights on. This is the government's new mantra, to try to counter the critics who rail against green taxes putting energy prices up.
4.39pm: More from Fiona Harvey:
The cover of the EMR white paper bills it as a plan for "secure, affordable and low carbon electricity". Note the order in which those words appear.
Huhne says he is sending a very positive signal to those who want to build new gas fired power plants. But he also said gas prices going through the roof was cause of people having cardiac arrest over their energy bills.
4.42pm: Final snap from Fiona Harvey before she gets writing the
news story:
Huhne rejected the claim that the reforms would favour nuclear power. He said no public subsidy would be given to the nuclear industry. However, while this is true, observers have noted that putting a minimum price on carbon would enable nuclear plants to make higher profits by penalising fossil fuel competitors, and the new long term contracts are also likely to favour nuclear power.
Huhne has to say nuclear is getting no subsidy for political expediency. But it's an idiotic position in my opinion. Even the Treasury accepts it gives money to nuclear, and as a windfall for the existing reactors.
4.49pm: Here's the motherlode: the several hundred pages of the Electricity market reform white paper from Decc. Enjoy, and let me know what you find.4.54pm: Here's Decc's summary of the key measures, with my comments.
A Carbon Price Floor (announced in Budget 2011) to reduce investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation now
That's overwhelmingly a subsidy for nuclear and is already in place. All the other measures are months or years away.
The introduction of new long-term contracts (Feed-in Tariff with Contracts for Difference) to provide stable financial incentives to invest in all forms of low-carbon electricity generation. A contract for difference approach has been chosen over a less cost-effective premium feed-in tariff
These will mean upfront costs can be raised for new plants, against the return guaranteed by the contracts, which will be able to be signed from 2014. Critics say complex contracts for difference favour the big companies over the smaller ones which might build renewable capacity.
An Emissions Performance Standard (EPS) set at 450g CO2/kWh to reinforce the requirement that no new coal-fired power stations are built without CCS, but also to ensure necessary short-term investment in gas can take place
Banning coal power stations without carbon capture and storage is necessary, but the first commercial scale trial - promised £1bn by the government - is still in limbo. Some greens are worried about a dash for gas, other commentators think gas is an essential "bridge fuel".
A Capacity Mechanism, including demand response as well as generation, which is needed to ensure future security of electricity supply. We are seeking further views on the type of mechanism required and will report on this around the turn of the year.
This is the biggest change from what we expected. Incentivising "demand response" - i.e. paying factories and others to reduce power demand at peak times - is important. Cutting demand is often cheaper than having to build new generating capacity.
5.10pm: The most intriguing new measure I have seen in today's reforms is:
The Government will put in place effective transitional arrangements to ensure there is no hiatus in investment while the new system is established.
A source in Decc tells me the "transitional arrangements" are aimed at making sure renewable energy investment doesn't sag while the new "contracts for difference" regime is up and running by 2014. But, as mentioned below, the uncertainty caused by the year-long EMR consultation itself has already dumped the UK from 5th to 13th in the global green energy investment table. So the "transitional arrangements" had better be good. The source also says the review of ROCs - the scheme that obliges suppliers to buy some green energy - due in next year will now happen this year. The last review brought forward ended with solar power subsidies being slashed.
Another source is more cynical about the transitional arrangements. He thinks it means some kind of guarantee to EDF that nuclear will go ahead, so they can push on with the new nuclear plant they want to build at Hinckley point, while the contracts for difference are put in place.
5.22pm: Time to round up some reaction. Here's
Michael Jacobs, visiting professor at the London School of Economics and a former No 10 special adviser for Labour, saying cross-party consensus is critical if investors are to have confidence. Energy is a long term game.
'It is vital that these reforms work. The Government must therefore consult not only with the industry but with the opposition, to get cross-party support for its proposals. If the required levels of investment are to be made, investors need to know that these reforms are for the long term. There are not many issues on which Labour will wish to work with the Coalition, or vice-versa, but this has to be one of them.'
5.26pm: An update from Matthew Spencer, director of the Green Alliance, and quoted below on the government's indecision on a growth strategy:
The shift to low-carbon power contracts marks a qualitative toughening of UK energy policy, and is a significant step forward. There are also some promising signs that the coalition will create a market for negawatts [energy efficiency] to match the one for low carbon megawatts. However, because the Coalition are still undecided on green growth much of the detail needed by investors is missing. Sadly this means the UK will continue to underperform in the clean energy investment rankings until the volume and price of renewable contracts is clearer.
5.42pm: I'll round up the rest of the reaction in groups. First, here's the Green party MP Caroline Lucas and the green NGOs.
Caroline Lucas MP said the reforms are "a love letter to nuclear power":
I welcome efforts to address the UK's dependence on fossil fuels and boost investment in renewables, there is no doubt that the government's circuitous Electricity Market Reform is a love letter to nuclear power. The introduction of a carbon price floor is set to gift huge windfall handouts of around £50m a year to existing generators – making a mockery of the Coalition pledge not to subsidise the industry. To claw back this money for the taxpayer, the government should levy a windfall tax on nuclear.
We know that energy efficiency and demand management measures play a key role in tackling rising bills and lifting people out of fuel poverty – yet they are absent from the EMR. The Government should use the full revenue from the EMR to invest directly in energy efficiency and demand reduction, and measures to reduce fuel poverty.
John Sauven, Executive Director of Greenpeace UK said the biggest winners are the big six power companies:
There are six winners from today's white paper and millions of losers. The winners, yet again, are the big six energy suppliers who have been given a continued license to pocket rather than save customers money. For the millions of consumers, many now living in fuel poverty, this white paper just increased the amount they will have to fork out each year on their energy bills without fundamentally changing the foundations for a shift to energy efficient and clean, renewable energy economy.
Friends of the Earth's executive director Andy Atkins said more is needed on community energy projects:
This is the opportunity to put power back in the hands of the people - not just the six big energy companies - and to unleash the potential of the UK's wind, waves, tides and sun. The Government must help insulate homes, get new companies to invest in renewable energy and support communities to generate their own power.
5.56pm: Following the green reaction to the government plans below, here's the energy industry's take. I said yesterday that if EDF, the French-owned company that want to build four new nuclear power stations, liked the plan, you can be sure it's a good plan for nukes.
EDF chief executive Vincent de Rivaz said:
Today's White Paper gives Britain more control over its energy future. This will transform the market and ensure customers will benefit from stability, security, affordability and predictability.
Current UK electricity prices are driven by volatile fossil fuel prices, which are subject to global events outside Britain's control. As a result, the country is exposed to spiraling energy costs.
Today's announcement puts customers' needs at the heart of the market. It encourages investment in generation which is both low carbon and not dependent on fossil fuel prices. This is good news for customers, policy makers and investors. Electricity Market Reform means that cost will be kept to a minimum.
So no actual mention of "nuclear" there, but it's clear EDF are very, very happy.
The Association of Electricity Producers represents the whole industry and has voiced loud concerns in the past about the burden of carbon targets. Chief executive David Porter said:
This is a bold step by the government to give the electricity industry confidence to invest in a low carbon power industry. Electricity producers are already big investors in the UK, but the investment required by 2020 - about £200 billion across the energy sector - is enormous and far too much for the industry to contemplate without attracting new capital.
'Reforming the electricity market to meet these [carbon emission] targets inevitably comes at a price. The government will have to assure itself of the cost effectiveness of its measures and both government and the industry must be open and honest about the cost.
And the chief executive of the manufacturers' trade body EEF, which represents steel, cement, paper and other sectors, Terry Scuoler, said:
We need a clear picture of the implications of the cumulative cost of climate and energy policy. This will be critical in reassuring manufacturers who are planning to invest in Britain that their competitiveness will not be damaged by allowing electricity prices to get out of line with their major competitors.
The government must introduce the promised package of compensatory measures for energy intensive sectors in order to safeguard their international competitiveness.
6.06pm: Fiona Harvey's
news story is live now. Here's the top of it:
Households and businesses across the UK face a future of power blackouts unless they help to pay for major new investments in the country's creaking infrastructure, the energy secretary warned on Tuesday.
"We have to stop dithering – you can have blackouts or you can have investment. Which do you want?" asked Chris Huhne, unveiling a package of far-reaching reforms in the biggest shake-up of the electricity market since privatisation.
6.10pm: Last batch of reaction, from the analysts and academics.
David Oliver, a renewable energy analyst at Inenco, may have delivered the soundbite of the day:
"A government which allows prices to rise is unpopular but a government which allows the lights to go out is unelectable."
Professor Catherine Mitchell, at University of Exeter, said confirmed her belief in March that is was all about getting new nuclear built:
The White Paper may throw a few crumbs of comfort to the renewables industry, but in reality it is all about getting new nuclear power stations built. It will cost consumers and the environment dear, and can only be seen as a short term package to support the nuclear industry in general, and EDF in particular.
Ronan O'Regan, director of energy and renewables, at consultancy PwC, said the energy prices rises are not immediate but in the pipeline:
The measures in the White Paper are not going to have an impact on consumer prices in the short term, because this is about facilitating an investment programme that's probably only going to kick off properly in 2014 - 16. However there is inevitability here, that this is a massive capital investment programme and will flow down the line to consumers.
Professor Jim Watson, director of the Sussex Energy Group, said he was concerned the complexity had not been addressed:
It is disappointing that the government have not taken the opportunity to remove unnecessary complexity. There are still too many policies in this package to achieve the government's stated aims. The Emissions Performance Standard remains part of the plans, despite it being superfluous.
6.30pm: Almost done! First, thanks for all the comments and tweets.
I'll sum up by answering the questions I set out yesterday.
• What will it cost energy customers? Huhne made a good case that driving through reforms is the least worst option, i.e. bills will rise by more if nothing is done.
• Are there incentives for energy efficiency? Yes, sort of. The government will now consult on how demand response can be incentivised as part of the capacity payments, which were originally intended only to cover the back-up power plants needed to help balance intermittent renewables. They also promise more work on energy efficiency, alongside the Green deal.
• Is there help for new entrants to the market? Not that I noticed, but tell me if I missed it.
• Which of the UK's big six energy companies is happy? EDF are beaming, so nuclear did very well.
• Is there any obligation to build renewables? Not that I saw, and the review of the existing ROC scheme has been brought forward a year.
It's a huge step forward from the free-for-all market we have now, which kept prices down for a while, but utterly failed to invest in the future. It is not as strong as it needs to be on renewables and cutting energy use - but that's less pressing if you have bet much of your money on nuclear, as Decc have. Overall: 6 out of 10.
View the original article here
When you're the stronger player, the cards almost don't matter. Photograph: Alamy
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