Ed Davey MP: More low carbon electricity and no public nuclear subsidies - the aims of today's draft Energy Bill

Ed Davey is Member of Parliament for Kingston & Surbiton and Secretary of State for Energy and Climate Change.  Follow Ed on Twitter.

Over the next decade, around a fifth of existing power plants are due to close, against a background of projected increased energy demand and increasing energy prices. We need new investment simply to keep the lights on and avoid blackouts becoming a feature of daily life. But we also need investment in electricity generation for our climate change goals. We must decarbonise Britain’s electricity generation, to meet our Carbon Budgets as we transition to a low carbon economy.

We need an estimated £110 billion investment in electricity generation and transmission this decade alone. So we need electricity market reforms to incentivise this investment efficiently.  The draft Energy Bill introduced in the House of Commons today is designed to achieve this, by giving greater certainty to allow investment to flow.

Why is it a draft Bill? Because I have never believed that government knows all the answers. We have seen many examples in the past of bills introduced in haste and repented at leisure! So I am keen to give the opportunity for MPs, NGOs and members of the public to scrutinise the bill and make suggestions. This is I believe a much more sensible and mature way to go about legislation.

There are three potential low carbon electricity generation sources - Renewables, Fossil Fuels if abated by Carbon Capture and Storage (CCS) and new Nuclear. All could play a role in our future energy mix, even though they each present their own challenges and have their own uncertainties. That is why a balanced approached is necessary.

I am very clear that renewables – solar, wind and tidal will have a critical and growing importance in our energy mix. Gas generation also has a role, in the short and medium terms, as a reliable and flexible electricity source to meet baseload  demands replacing the much higher emitting coal generators now and balancing demands in the future. However it will only have a role to play in providing baseload demand in the longer term if run alongside carbon capture and storage technology.

So how are we dealing with nuclear power? The coalition agreement makes clear that new nuclear will only be built if it is without public subsidy - a commitment originally lifted from the Conservative manifesto. I have been very clear since taking over as Secretary of State that that is a non-negotiable. If nuclear reactors are not cost competitive with other forms of low carbon power generation they will not be built.

But our existing electricity market makes it more difficult for such low carbon technologies to develop and deploy, because they all have much higher upfront capital costs than unabated fossil fuel competitors like gas. Raising the carbon floor price, introduced as part of our green tax switch policies, will help but by itself will be insufficient. We need electricity market reform to reduce the risk and cost of capital for all these low carbon technologies. The challenge is to move from where we are now, to where we want to be by the middle of the next decade. Our reforms are ambitious and far-reaching and cannot be done in a “big bang”. Yet we need to give investors the strongest possible signals now, locking into law the transparency, predictability and stability they seek.  That is why we are proposing a phased approach.

Yet as we all focus on the UK’s wider economy, this investment challenge for energy infrastructure, due to security and climate change, is a historic growth opportunity. It offers the prospect of investment and jobs. The United Kingdom is already establishing itself as a hub for renewables expertise, attracting investment from around the globe into our world beating offshore wind industry. With our competition announced this April, we are leading the way for a new UK Carbon Capture and Storage Industry. This industry alone could be worth £6.5 billion a year to the UK by late in the next decade as we export UK expertise and products.

So the energy bill will give us the opportunity to decarbonise our economy, at an affordable price for consumers and at the sqame time to boost investment, jobs and growth.