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RWE response to the introduction of the Energy Bill

29/11/2012

The Department of Energy & Climate Change (DECC) has today introduced a new Energy Bill setting out fundamental reform to the way Britain’s energy sector will operate.

RWE and npower strongly support the triple target of radically reduced carbon emissions, guaranteed security of supply, and competitive energy prices for British businesses and households.

The only way to achieve this is through clear and cohesive market design that creates a level playing field in which all low carbon technologies can compete.

Volker Beckers, RWE npower Group CEO, said:
“Whether you’re a householder investing in your home’s energy future, or you’re a major investor, like RWE, investing billions of pounds in Britain’s energy future, today’s announcement is fundamental to the decisions you will be prepared to take.”

“It’s now that the real work begins. It’s vital for our customers and British business alike that these reforms are implemented swiftly and effectively, and do not add unnecessary cost to future energy bills. We look forward to getting down to the detail of implementation with Government.”

RWE broadly welcomes the progress made by Government in delivering this new policy framework for the sector, but registers a number of concerns.

1. Cost-Effectiveness

The cost of energy should not be higher than it needs to be. The UK currently enjoys some of the lowest energy prices in Europe, but energy is still expensive. Energy Supply companies, like npower, can already influence just a fifth of the costs that make up a customer’s bill, and the impact of Government policy will continue to make up a larger and larger proportion of the bill in future.

RWE wishes to see a policy framework that minimises costs and creates predictability for customers. In this regard, we are concerned that the government's model for the CfD mechanism could create large volatility in monthly costs and therefore risks more frequent price changes and increased costs to customers.

2. Capacity Mechanism

The Capacity Mechanism sets out Government’s proposals for a new intervention in the supply market that would reward some generation technologies whenever they are able to produce electricity in addition to the price they are paid for the electricity they actually do generate, thus acting as a back-stop to security of supply

RWE does not believe the case has been made for the introduction of a capacity mechanism at this time. There has been, and will continue to be, substantial investment in Britain’s energy sector such that the introduction of a capacity mechanism will add significant unnecessary cost to the British economy and our customers.

3. Scrutiny

RWE believes that given the increasing complexity of the energy sector and the significant impact of cost burdens to our customers through ineffective or unnecessary policy, it is vital that all proposals, and their combined impact on customers’ bills, are debated thoroughly in the House during the legislative process, and in open and free debate by customers and stakeholders.

The Energy Bill as presented today relies on as yet undrafted secondary legislation for the detail of how proposals will be implemented in practice. RWE would like to see all secondary legislation introduced early enough for full and thorough scrutiny by the House during the legislative process.

4. Transition

RWE remains concerned at the breadth and impact of the fundamental change currently proposed for the energy sector. It is our belief that the energy sector is sufficiently complex that unforeseen consequences or problems in implementation are to be expected.

The Contracts for Differences (CfDs) mechanism will replace the Renewables Obligation as the key mechanism incentivising investment in low carbon generation technologies.

If the UK is to maximise the opportunities for economic growth from renewable generation and achieve its 2020 targets, it is critical that there is a smooth transition from the RO to the new market arrangements.

The transition from the former renewables support mechanism, the Non Fossil Fuel Obligation, to the RO created an investment hiatus with the build rate for UK wind falling to just half of that experienced prior to the change. The risk of project delays makes the UK market less attractive for the supply chain, resulting in less inward investment and fewer jobs being created as a result.

To enable continued development and investment, Industry and Investors need a period of parallel running which is commensurate with the lead times for large scale projects, such as offshore wind, and the operational period required for the CfD to bed in.

The delay to the EMR timetable already experienced makes the proposed lag between the first CfD contracts and the proposed closure of the RO in 2017 insufficient. Extending the RO until 2020 would provide developers with a backstop option that enables continued investment and growth, whilst Industry becomes comfortable with the benefits of the CfD.

Notes to editors

RWE Investment in the UK

RWE has invested more than £4.5 billion into new energy infrastructure for Britain since 2006, more than any other energy company, giving RWE not only the largest and most efficient fleet of gas-fired power stations in Britain, but also the largest operational portfolio of renewable energy technologies in the country.

In 2012, RWE npower commissioned the £1 billion, 2 GW Combined Cycle Gas Turbine plant at Pembroke, which will generate enough power for 3.5 million homes, whilst RWE Innogy took delivery of the ‘Seabreeze’ vessel for UK waters: a specially-designed ship costing nearly £100 million, required to build offshore wind turbines.

In 2011, RWE npower opened the £650 million power station at Staythorpe, Notts, and was the first company in the world to successfully convert a major coal-fired power station to run entirely on 100% sustainably-sourced wood pellets, creating the world’s largest biomass power plant at Tilbury in Essex.

RWE Innogy is currently developing a number of new renewable projects across Britain, including the 500MW+ offshore wind projects at Greater Gabbard (50-50 JV with SSE) and Gwynt y Mor (in partnership with Stadtwerke Munchen GmbH and Siemens AG).

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RWE is one of Europe’s five leading electricity and gas companies. It is active in the generation, trading, transmission and supply of electricity and gas. More than 70,000 employees supply over 16 million customers with electricity and approximately 8 million customers with gas. In fiscal 2009, RWE recorded around €48 billion in revenue.

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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.