Energy market reforms fail to impress major investors

The government’s proposed reforms of the energy market, designed to drive investment in energy infrastructure, have been met with a cool response from the biggest investors in the sector.

Last Friday, the government announced it had agreed a raft of measures that would form part of its electricity market reforms under the Energy Bill, published yesterday (29 November) after Building went to press. Under the proposals, the government will act as the counterparty to the “contracts for difference” for electricity generators, which guarantee the price they will receive for electricity they generate for decades to come, giving firms certainty to invest in projects.

But it has deferred a decision on setting a binding decarbonisation target for 2030 until after 2016.

The government said it would also start “capacity auctions” in 2014, in which generators will bid to build plants to provide peak-time power, with the government paying for the extra capacity to ensure demand is always met.

Energy secretary Ed Davey said the proposals would “bring on the investment required to keep the lights on and bills affordable”.

But energy firms, among the biggest investors in the sector, have given a cool response to the announcement.

Energy UK, the trade body for energy firms, said there was still “a long way to go”. It said investors were eager for clarity on the details of the “strike price” - the electricity price the government will guarantee for various green generation methods - as well as detail on how the capacity auctions mechanism will work to enable them to plan more quick-firing power plants.

Firms are also anxious for details on the short and medium-term incentives for building new plants that can be relied upon until the Energy Bill’s provisions are passed into law.

Volker Beckers, chief executive of Npower, said the government’s announcement was a “small step forward” but there needed to be more “clarity and stability”. “If we fail to make energy policy simple, clear and effective for the long term, our economy and our well-being will suffer,” he said.

A spokesperson for Scottish and Southern Energy (SSE) urged the government to “move quickly to firm up these commitments and fill the vacuum of uncertainty, so that investors like SSE can make the firm investment decisions needed to stimulate jobs and growth in the UK”.

John Davies, Davis Langdon’s sustainability head, said conflict between the Treasury and the Department of Energy and Climate Change over energy policy had damaged confidence in the plans. “People have not seen it as very credible,” he said.