A few meetings over recent weeks on the draft UK Energy Bill. This Bill introduces Energy Market Reforms (EMR) together with some reform of Ofgem and nuclear inspection. The draft Bill has been published and the Bill will be introduced in Parliament later this year. Royal Assent is planned for late 2013, with reforms implemented by secondary legislation in 2014.
The energy market reforms will introduce a complex mix of mechanisms to underpin the so called energy market. These are needed because around a fifth of current generation capacity will be decommissioned in the next decade. £110bn of new investment is needed, more than double the current rate of spending and existing systems simply won't deliver the mix of capacity that is required.
The different mechanisms aim to provide long term price certainty for low carbon generation investment (Contracts for Difference), together with capacity payments to ensure security of supply (Capacity Market). The carbon tax and emission standards will phase out high carbon power generation.
These are complex mechanisms and it is unclear exactly how they will work until the secondary legislation stage. It will certainly increase energy prices in the short term, with at least the hope, that they will be lower in the longer term.
For Scotland the EMR introduces a complex mix of devolved and reserved powers. The Scottish Government's prime concern will be to ensure that the mechanisms do not disadvantage the renewables industry that they put so much emphasis on. Emission standards and the renewable obligation, key to the system, are devolved powers. Early indications are that renewables may not do as well as nuclear, given the need for long term guarantees. Coal operators looking to CCS are also sceptical. Gas looks like being a gainer, not least because they are exempted from the emissions performance standard until 2045. Overall, uncertainty running up to 2014 is likely to impact on investment, despite efforts to create a smooth transition. We also need to judge the impact of the TRANSMIT review on transmission charges, always a key Scottish issue.
UNISON has long argued for a planned energy policy. There is a rich irony that it is the Tory market fetishists that are introducing something very close to a planned policy. They will argue that the planned element is short term, but in reality the regulatory elements are likely to continue for many years. The mechanisms focus almost entirely on the supply side and the consumer barely gets a mention. Given they will pick up the cost, there is a strong case for greater transparency and consumer protection. All of these systems will be complex and expensive. If we wanted to get really serious about protecting the consumer, we would bring the industry back into public ownership.
We also need to keep an eye on developments in the European regulatory system. If, as is likely, they adopt a different system - we could end up with supplier incentives to import French nuclear or German coal powered generation into the UK.
Finally, what does all this mean for the independence debate? It appears that this is another area where the SNP favour a UK wide solution. Hardly surprising as it socialises the cost of renewables across the UK. It is less clear if the rest of the UK will be as enthusiastic to subsidise generation from another country!