''Landmark'' agreement reached on energy

23 November 2012

A landmark agreement has been reached on energy policy that will deliver a clear signal to investors, the Energy and Climate Change Secretary Edward Davey has claimed.

He called it a "durable" agreement across the coalition against which companies can invest and support jobs and the UK's economic recovery. The decisions reached are true to the coalition agreement, he said, and mean the Energy Bill can be introduced next week and essential electricity market reforms can be up and running by 2014 as planned.

"[The agreement] will allow us to meet our legally binding carbon reduction and renewable energy obligations and will bring on the investment required to keep the lights on and bills affordable for consumers," Davey said.

Essentially, the plan involves creating a government-owned company to act as a single counterparty to give investors confidence to enter into new long-term contracts for low carbon electricity projects. At the same time, powers will be given to create a "capacity market", allowing for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, if needed. The government is also aiming to provide certainty to gas investors and draw up a gas generation strategy which will be published at the same time as the Chancellor's autumn statement. There will also be an amendment to the bill relating to a decarbonisation target range for 2030.

However, the estimate is that energy companies will charge households an extra £7.6bn to achieve this low-carbon electricity infrastructure. This would mean between £95 and £110 being added to the average bill by 2020.

Criticising the announcement, Labour's shadow energy and climate change secretary Caroline Flint said it was outrageous that on the day party leader Ed Miliband committed to a "tough cut" in Britain's carbon levels by 2030, George Osborne and Ed Davey abandoned their target.

"This is a humiliating failure by the Liberal Democrats and a betrayal of David Cameron's promise to be the greenest government ever," she said.

EDF Energy called the deal "a very positive step", "good news" and a significant move towards providing secure low carbon energy for the UK for many years to come. Energy UK also said the agreement was good news while the Solar Trade Association said the government had given a strong signal of its commitment to the renewables industry with clear financial backing.

However, Greenpeace said: "By failing to agree to any carbon target for the power sector until after the next election, David Cameron has allowed a militant tendency within his own ranks to derail the Energy Bill. It's a blatant assault on the greening of the UK economy that leaves consumers vulnerable to rising gas prices, and sends billions of pounds of clean-tech investment to our economic rivals."