UK's energy policy 'unworkable'

22 July 2012 Last updated at 19:29 ET By Roger Harrabin Environment analyst, BBC News

MPs have accused the Treasury of making the government's clean energy revolution unworkable and creating the risk of higher household bills.

They said Treasury changes to the draft Energy Bill will increase the risk of borrowing for investors.

They added that it would put up the cost of renewable and nuclear power, with customers bearing the extra cost.

A Treasury spokesman said the aim was to achieve government goals while protecting businesses and consumers.

Tim Yeo, chairman of the energy and climate change select committee, said: "The Treasury has clearly intervened in the draft bill in a way that will put up bills to consumers and put off investors by increasing their risks.

"This is exactly the opposite of what the Treasury says it wants," he told BBC News.

It is the latest in a series of exchanges between the committee and the Treasury.

Mr Yeo recently criticised Chancellor George Osborne for, in his view, trying to undercut subsidies to onshore wind - the cheapest option of expanding the UK's renewable energy portfolio.

Policy worries

The MPs wanted Treasury ministers to answer questions about their influence on energy strategy, but they declined.

A Treasury source said it would be inappropriate for ministers to be questioned at this stage in parliamentary proceedings.

The committee has two major worries about the finance department's impact on the draft bill.

The first is about the long-term contracts for developers who are being asked by the government to plough billions in the UK's low-carbon infrastructure.

Originally, the Department of Energy and Climate Change (Decc) said the government would guarantee the contracts, thereby reducing the risk for investors and allowing them to borrow large amounts at a low rate of interest.

But the Treasury has since ruled that the government will not be the guarantor.

"This will result in higher borrowing costs, and make banks less likely to make loans," observed Mr Yeo. "It makes no sense."

Jerome Guillet, from Green Giraffe Energy Bankers - an international advisory firm - said: "The government keeps trying to come up with complicated ways of disguising the fact that it's subsidising nuclear and renewables.

"In fact it is continuing to subsidise them but the complications are making the financing more and more expensive," he told BBC News.

Does the cap fit?

The MPs' second worry is over the ongoing consumer subsidy to renewable and nuclear power generators, which are needed for the UK to meet its legally binding targets.

The Treasury says the subsidy will be limited to hold down the cost to consumers - but it won't reveal the size of the future cap.

"This is another thing that's putting up the risk for investors and increasing the cost of energy projects," said Mr Yeo.

"This is really counter-productive. How can investors be confident in planning long-term projects which will rely on price support if the government might turn round and say 'sorry, the cash has run out'. This is another perverse effect."

Mr Yeo is also fighting Treasury attempts to impose big cuts in subsidies to onshore wind farms.

'Don't like turbines'

"The chancellor is being urged by backbenchers to make major cuts to the support for onshore wind. That would cause serious damage to the industry.

"This is another thing that will have a perverse effect because onshore wind is the cheapest way of meeting our renewables targets," he said.

"Under the guise of reducing bills for consumers, the chancellor will actually be increasing consumers' bills.

"I don't know if the back-benchers realise this but surely the Treasury does - yet it keeps pressing on with an action that's clearly political to assuage MPs who don't like turbines in the countryside."

A Treasury spokesman said: "We have conversations will all departments because of the nature of what Treasury does - but we don't answer questions about other departments' policies," he said.

He also pointed out that the Treasury had introduced the controversial carbon price floor to push up the cost of fossil fuel generation, with the aim of making alternative low-carbon energy sources more attractive economically.

CBI director-general John Cridland said major energy investments were "hanging on critical decisions" that the government had to take.

"If they are to plan long-term investments, businesses need to know what the electricity market will look like in years to come," he said.

Source: http://www.bbc.co.uk/news/science-environment-18922092#sa-ns_mchannel=rss&ns_source=PublicRSS20-sa

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