Capacity markets, old coal and a decarbonisation target (again): Its time for the energy bill, round two
Yes, the energy bill has at last left the House of Commons. But don’t be fooled – arguments over how the UK will attract £110 billion of new investment while meeting its emissions reduction targets aren’t settled yet.
MPs dissected the bill over two days of noisy debate last week, rejecting most of the proposed amendments. But the key disputes are set to emerge again in House of Lords as the bill enters its next stage.
A panel of policy experts including Energy Secretary Ed Davey gathered at a Green Alliance event yesterday afternoon to discuss the state of the energy bill. From the discussion, it’s clear there’s still much the Lords need to resolve.
Decarbonisation target (again)
The Lords are expected to try and force MPs to reconsider allowing a decision on setting a power sector decarbonisation target to be delayed until 2016.
An amendment to force the decarbonisation target to be set immediately was rejected after 290 MPs over-ruled the 267 MPs who voted for it. The closeness of the vote is likely to encourage the Lords to take another look at the pros of cons of setting the target now.
Davey maintained getting a promise to set the target at all was a “big, big change” from the first draft of the bill. A target would be set, he promised, even if it was later than some MPs would like.
Labour’s shadow energy and climate change minister in the Lords, Baroness Bryony Worthington, another panellist at the event, was more skeptical. She said the wording of the bill as it currently stands means “a decarbonisation target may be set, not that it will”.
Labour peers will be pushing the Lords to force MPs to review their decision, she claims. They’ll need to persuade some colleagues from other parties that it’s the right thing to do first, however.
So it looks like the decarbonisation target debate could be set for a repeat performance in the coming days, only this time the half-empty benches will be red instead of green.
Capacity markets
All the panelists – apart from Davey – argued the energy bill had chased energy generation headlines rather than focussing on more immediate measures such as a capacity market.
Worthington said the bill had “started from the wrong place”, with the government pursuing a nuclear deal rather than focussing resources on ironing out the detail of energy demand response. Nick Eyre, senior research fellow at the University of Oxford’s Environmental Change Institute, said the government’s endeavours meant demand side measures had some “catching up to do”.
The National Grid pays generators to ramp-up supply when there is a surge in demand, choosing companies according to the price they offer in a capacity market.
A new clause in the energy bill would allow bids from companies to reduce demand or release some stored power alongside generation bids. That could mean demand is reduced and extra power plants wouldn’t need to be brought online.
But the capacity market is currently weighted in favour of electricity generators rather than those willing to save electricity, says WWF’s energy and climate change policy officer, Jenny Banks.
She says:
“From what we’ve seen so far in the design of the capacity market, we are going to need some modifications in order for demand side response to really participate successfully in the long term and grow.”
The main problem is companies won’t get enough warning to switch off and reduce demand, meaning they would would have to gamble that the projection comes true.
Companies would also be fined if they can’t reduce demand for as long as National Grid needs. As supermarket freezers can’t stay turned down all day, demand-side bids could be discouraged, leaving only generators participating in the market.
Emissions might increase as a result, as coal and gas plants could need to be fired up to increase supply instead of demand being reduced.
Banks says a solution could be a signal from the National Grid asking for bids quickly with a more precise estimate of how long the peak will last. A certain proportion of capacity market funding could also be ring fenced for energy demand response to rebalance the market.
The Lords will certainly be looking to tweak the energy bill to reflect these technical but potentially very significant problems.
Old coal
The Lords are also braced for another skirmish over whether old coal plants can continue to be used when demand is at normal, non-peak levels – to provide what is known as baseload capacity.
Worthington is particularly concerned about this because “there is no way we can hit carbon targets with a baseload of coal”.
Labour MP Barry Gardiner proposed an amendment in the House of Commons which would require all old coal plants to comply with the new emissions performance standard, limiting emissions to 450 grams of carbon dioxide per kilowatt hour. That’s far lower than a coal plant without carbon capture and storage (CCS) technology could manage.
But MPs rejected the amendment, so the EPS only applies to new plants.
Labour’s peers will be looking to close the loophole before the bill gets sent back to MPs in an attempt to force the UK off its dependence on old coal.
Round two
The Lords will make opening statements on the bill this afternoon before it gets a thorough dissection in committees. The arguments will rumble on over the next few months before the key votes happen in October.
So if you thought you’d heard the last of the energy bill when it finally left the House of Commons last week, think again.