Ministers are tinkering at the margins of the electricity market instead of bringing forward the radical reforms that are needed
The UK is at a critical juncture in the way it uses energy. More than £100bn of investment is needed by 2020 to replace our ageing power stations, cut carbon emissions, upgrade the grid and create new incentives to make this happen.
Government proposals for electricity market reform were published for consultation in December and the cross-party Committee on Climate Change has looked at the plans in detail. This Monday we publish our verdict,
The proposals are a start, but the the government still has a long way to go. We fear that the plans will fail to attract the necessary investment in the electricity sector by 2020 and we will miss this opportunity to put the UK at the forefront of a worldwide revolution in low-carbon energy – one that could bring considerable competitive advantages. We have already seen a drop in investment for clean energy in the UK as the industry holds its breath waiting for greater clarity from the coalition. After coming fifth in the world ranking for clean energy investment in 2009, the UK has since dropped out of the top 10.
At the heart of the reforms are new long-term contracts to encourage generators to deliver low-carbon energy. These contracts will give them a "top up" or "feed-in tariff" on the price they receive in the market if wholesale prices are low. These tariffs are necessary to bring forward low-carbon energy projects, which are often held back – despite lower running costs – because of the higher up-front capital expenditure needed to get them off the ground.
However, the way the government proposes to design the contracts seems to be more about concealing the fact that it is providing financial support for nuclear power than it is about coming up with the best approach. This is politically expedient given the promise made in the coalition agreement not to subsidise nuclear. But this subsidy-by-stealth risks distorting the whole process of electricity market reform merely to save political face for the coalition.
The government must not impose a one-size-fits-all reform on all low-carbon generation in order to avoid singling out nuclear for support. It needs to be upfront about its financial support for nuclear energy and recognise that different technologies, like wind or solar, will require a different kind of support.
The government should leave it to independent experts to design feed-in tariffs that will promote all kinds of low-carbon technologies, not just nuclear. To meet our climate change targets we will need a mix of nuclear, renewables and carbon capture and storage for coal and gas plants. Nuclear has an essential role to play. Smart grids, energy storage and better renewable technologies might conceivably reduce the need for nuclear eventually, but that is a long way off. In the meantime, we need nuclear to provide clean steady "baseload" power.
The government needs to come back with a much more ambitious plan for market reform. They must accept the pathway of carbon cuts proposed by the independent Committee on Climate Change, and start with an objective to slash the carbon intensity of our power stations by 2030.
Currently, coal-burning power stations produce 900g of carbon dioxide per kilowatt hour of electricity. Gas is between 400 and 640g CO2/kWh, nuclear can be as low as 19g CO2, and offshore windfarms produce as little as 9 to 13g. Energy companies must be given absolute certainty that we will not allow the dirtiest forms of power generation to continue beyond the 2020s. The maximum by 2030 must 50g per kilowatt of power.
At the moment ministers are tinkering at the margins of the electricity market instead of bringing forward the radical reforms that are needed. Cleaning up our power sector will cost money, but the long-term benefits for the UK of having a secure, reliable and low-carbon electricity system are clear. In the short- to medium-term bills will rise, but in the long term people will see savings – ministers should be open about that. Every year we wait means more investment abroad and less chance of stopping the worst effects of climate change.
• Tim Yeo MP is chair of the energy and climate change select committee