Posted by

Tom Nolan, Policy Adviser

04 Feb 2013

A combination of ageing infrastructure and a changing climate has made energy policy one of the greatest long-term challenges facing the UK. The UK must achieve the task of safeguarding future energy security whilst meeting strict environmental targets; all while keeping costs down for consumers.

When coming to power the coalition promised to radically reform the UK electricity market in order to meet the challenge. However, considering how complex the electricity market is, reform was never going to be a straight-forward exercise.  The government therefore was correct to take their time and issue a range of consultation documents, a White Paper and a draft Bill, before finally introducing a full Bill to reform the market.

That Bill was unveiled late last year and is currently making a relatively smooth passage through Parliament.. If all goes according to plan it should reach the statute books at the scheduled time. However, with many high profile figures across all the main parties expected to table an amendment to include a decarbonisation target for the power sector on the face of the Bill, progress might slow down somewhat over the coming weeks.

By the end of the year the UK should have legislation in place that will make large-scale investment in low carbon forms of energy more attractive to potential investors. And with most of the UK nuclear generating capacity expected to disappear over this decade, the investor certainty that the Bill will provide cannot arrive soon enough.

From the business perspective the most important thing is for the reform to be in place as soon as is possible. We recently surveyed our members views on energy issues and unsurprisingly, long-term energy security featured as a big concern. Also, unsurprisingly was that the vast majority of businesses feel the best way to tackle future energy security is by having a diverse energy mix. They want to have the option of sourcing energy from numerous different sources (renewable, nuclear, and conventional fossil fuels) and they certainly don’t want to be overly reliant on any one source.  However, the survey also highlighted just have important an affordable energy supply is for businesses. Therefore, market reform must try to minimise any negative impact on competitiveness. 

The UK will unilaterally introduce a Carbon Floor Price in April this year.  There is always a risk that it may harm competitiveness, but with the price of carbon falling across the EU the risks posed by the floor price are even greater now than when it was first proposed. We have long argued for the floor price to be scrapped but, on the eve of its implementation the government must make every effort to minimise its impact on business.