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Energy Blog New Energy Bill Explained

New Energy Bill Explained

Chris Hurcombe
by Chris Hurcombe May 22, 2012

After much hand-wringing and collar adjusting, the Coalition Government’s highly-anticipated new draft energy bill is set to be outlined by ministers this afternoon, and contains one or two surprises that could have huge knock-on effects in the commercial energy marketplace.

Despite the knock-on effect from the Fukushima disaster, nuclear power is expected to be on of the big winners of the new draft energy bill, which boasts an all-new set of policies aimed to favour low-carbon power.

As well as renewable energy such as wind and solar power falling into theĀ  ‘low-carbon’ bracket, nuclear power is also set to be considered in the same category by the new bill – something that is already causing a stir in the renewable energy market.

New Energy Bill Explained

Many suppliers of wind and solar power are concerned that by being put in the same system of subsidies as the already-established nuclear power, they could be shunted into a lower level of income as comparisons are drawn to their atomic rivals.

The new subsidy system – known as ‘Contracts for Difference’ – allows energy supplier companies to sign long-term contracts to supply electricity. However, rather than competing at market-value, these business energy contracts could be higher or lower than they are in the wholesale market – attracting companies to sign into the long-term deals they need to give them the stability and certainty needed to attract investors.

The concern from smaller renewable companies is that the figurative giant of nuclear power will force them out of the market, with the head of one solar power company saying:

“This is a complex subsidy mechanism designed to artificially raise the price of electricity and make it more attractive for big companies to build new nuclear plants, but as a result no suppliers will be able to accurately predict the cost or volume of electricity that must be budgeted for at the start of each year,” he said.

“The level of risk in getting that prediction wrong will be a big problem for the big six energy companies, so imagine how much the risk is magnified for small energy suppliers. This risk does not exist under the current support mechanism for renewables.”

In reply, the The Department of Energy and Climate Change said its research showed the ‘Contracts for Difference’ would provide good value for money for consumers, at both a public and commercial energy level.