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Government must make energy policy workable

22/07/2012

Today, the cross-party Energy & Climate Change Committee has made their views on Government’s Energy Market Reform (EMR) proposals very clear: In its current state the draft Energy Bill would impose unnecessary costs on consumers, lead to less competition in the energy industry and deter, rather than attract, badly needed investment.

RWE companies, npower & Innogy (npower Renewables), have been the UK’s leading investors in renewable and other energy technologies over the past few years1 and now operate the largest installed capacity of both renewable and gas-fired power stations in the country.

We call on Government to maintain investor confidence in a low carbon future for Britain that will maximise prosperity for the UK economy and for UK customers by delivering an efficient and workable energy bill before the end of this year.

In response to the ECC statement, RWE npower Group CEO, Volker Beckers, said,

“RWE has been calling for clarity and simplicity since the earliest developments of market reform and we have continued to make these points in our evidence to the committee. It is clear that much of the industry now shares our concern.”

“The business of delivering energy to any location at any time, whenever it is needed, is complex enough without Government making it more so. Ultimately, it is the customer that will suffer due to uncertainty and complexity through unnecessary additional costs on bills.”

“The Energy Bill’s main job must be to make reform simple, effective and transparent. Investor confidence has never been improved by delivering complex, bespoke new arrangements which only look workable on paper; it’s about policy that is clear and bankable.”

RWE npower has made a number of clear, public statements about how the Energy Market Reform (EMR) should be managed and how it could best be achieved. We are concerned by the number and coordination of energy policy and regulation reform proposals currently being considered across the entire industry and, in particular, their potential impact on British customers and Britain’s economy.

In summary, our key concerns are as follows

WE is fully supportive of the UK Government’s climate change targets. We are fully supportive of the Government's objective of making the UK an attractive place for investment in low carbon generation. In particular we support the objective of ensuring a diverse mix of generation technologies and levelling the playing field so that all low carbon technologies can contribute to achieving UK climate and energy policy goals. It is vitally important and in the best interest of consumers that in reforming the market we strive to maintain an open, competitive and liquid wholesale electricity market.

  • We believe that extending the current Renewables Obligation to cover all low carbon technologies would have been the simplest and most efficient way to create a level playing field for investment, and had the significant added advantage of retaining the full benefits of the underlying competitive electricity market as well as being something that investors understand and are comfortable with. We are increasingly concerned that the EMR package is trying to pull too many policy levers at the same time.

  • This view of the need for a practical, critical path of energy policy reform is borne out by the uncertain progress seen on the EMR since the Government’s White Paper more than a year ago. We feel less clear about the shape of the EMR package now than we did 6-12 months ago. The proposals for the contract for difference have become increasingly complex and far removed from what we, the wider industry and the investor community, expected (i.e. a commercial contract, backed by government)

  • The multi-party statutory ‘instrument’ between low carbon generators and all suppliers is an unfamiliar concept and lacks precedent. There are serious questions being raised about its bankability by all stakeholders. Added business risks here will inevitably increase the cost of capital for major projects, ultimately meaning unnecessary extra cost for Britain.

  • The proposal to introduce a capacity mechanism now will create a more inefficient market meaning further unnecessary costs to Britain. Any mechanism must make sure that early movers, such as RWE npower, that have already responded to the signals that today’s open market gives to invest in Britain’s energy infrastructure are not penalised for doing so. It should also be recognised that the very fact that we and others have already responded to these market signals on capacity suggests intervention is unnecessary.

  • We need government to make decisions and deliver simplicity and clarity on the EMR package, including the capacity mechanism, to avoid a significant investment hiatus. We are hoping that DECC will use the recently established Expert Working Groups (on ‘Contract for Difference’ (CfD), institutional design and capacity markets) to drive forward the detailed design of the EMR with some urgency. As UK leaders in a diverse portfolio of energy generation technologies, including the largest installed capacity of renewable energy and the largest and most efficient fleet of gas-fired power stations, RWE commit to fully support this process.

      1. Bloomberg New Energy Finance Report for Greenpeace: http://www.greenpeace.org.uk/sites/files/gpuk/Big-Six-Investment-Trends.pdf

      Contact information

      Daniel Meredith
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      Daniel Meredith
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      0845 070 2807
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      Daniel.Meredith@RWEnpower.com
      npower press office
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      npower press office
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      RWE npower is a leading UK energy company and is part of the RWE Group, one of Europe’s leading electricity and gas companies. We serve around 5.8 million residential and business customers with electricity, gas and energy. Through RWE Generation, we operate and manage a flexible portfolio of coal, oil, biomass and gas-fired power stations, producing more than 10% of the electricity used in Great Britain. We are also on twitter - @npowerhq and Youtube.